The franchise community is made up of many different businesses from a variety of industries. While each industry has their own terms and vernacular, as a whole, the franchise community has some shared lingo. To help eliminate some of the confusion and help you make a more educated decision, here is a list of commonly used franchise terms.
Zees and Zors: This is shorthand for franchisees and franchisors, respectively. Because of the symbiotic relationship between franchisees and franchisors, they are often referred to each other in the same sentences and having an abbreviated and more distinct way to refer to each is helpful and efficient.
Franchise Disclosure Document (FDD): Required by the Federal Trade Commission, the FDD provides information and data on a business opportunity. It is a powerful tool in helping you make an informed decision. Formerly known as the UFOC (Uniform Franchise Offering Circular), it contains information on the franchise system, such as initial investment and other fees, training and support, and rights and obligations of both parties.
Franchise Agreement: This legally binding document describes the rights and obligations of both the franchisee and franchisor.
Operations Manual: This is an extension of the Franchise Agreement and contains all the information needed to operate the business according to the franchisor’s system.
Franchise Satisfaction Index (FSI): Franchise Business Review puts out this annual measurement of the satisfaction of franchise owners with a brand.
Acknowledgement of Receipt: Because franchises are legally required to provide candidates with their FDD, Item 23 is signed by the prospective franchisee as proof of the date the FDD was received.
Financial Performance Representation (FPR): Formerly known as an Earnings Claim, Item 19 is a representation of unit performance by a franchisor.
International Franchise Association (IFA): The industry trade association representing franchising. The IFA works to provide resources to both franchisors and franchisees, as well as third party suppliers. They are also active in the political space to support the best interests of franchises and small businesses.
Turnkey: This refers to a franchise opportunity that is streamlined and fine-tuned, eliminating much of the start up and learning curve associated with a new business.
Churning: Turnover of ownership of a franchise from one franchisee to another, from a franchisee to the franchisor, or the termination and closing of a franchise location.
Discovery Days: Commonly, the franchisor will invite prospective franchisees to the corporate office to meet the company’s leadership and staff and to learn more about the brand. Often it is one of the final steps before making the decision about whether to invest in the franchise.
Preferred Vendor: Franchisors often establish “preferred” vendor relations wherein individual franchisees receive negotiated discount pricing. These vendors will have knowledge and expertise on the brand’s unique needs.
Validation: Validation is an important part of the due diligence process when buying a franchise. This is the opportunity for candidates to speak with existing franchise owners to validate what they have heard from the franchisor. A list of franchisees is provided in the company’s FDD.