Are you on the process to learn everything related to franchise, you probably could use some help. In this post, we will look at some important terms that you will need to know if you want to own a franchise.
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Franchisee
If you have plans of buying a franchise, you will become a franchisee. Franchisee is an individual who buys the right to run a business using a franchisor’s name and brand.
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Franchisor
Franchisor is a company that sells franchises to franchisees. They are the parent company that has established products, processes and branding that they later require franchisees to implement in exchange for a fee.
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Feasibility Study
Before starting a new franchise, it is recommended to analyze whether a given franchise will succeed in a market or area.
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Area Franchise
Some franchisees prefer opening multiple locations of the same franchise. It is essential to have a franchise agreement to specify territory and the timeline for opening multiple locations.
Area franchisees may be needed to pay an area fee for the rights granted by the franchisor.
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Franchise Fee
This is up-front, initial fee a franchisee pays a franchisor to run a franchise. Usually, this is a flat fee, while sometime it is based on experience or territory size. Some franchisors provide discounts to existing franchisees, minorities or veterans.
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Royalty Fee
In addition to the franchise fee, as a franchisee, you will be required to pay a regular fee to the franchisor. That might be weekly, monthly or yearly, depending on the agreement. The amount of fee differs, sometimes it is a flat fee, and sometimes it is a percent of sales. Some franchisors also charge you a separate fee to manage the advertising costs.
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Franchise Disclosure Document
This is a legal document required by the U.S. Federal Trade Commission. The FDD document generally includes:
History of franchisor
Costs and fees of starting a franchise
Contractual obligations
Unit data
Other important information related to the franchisor/franchisee relationship
The FDD is generally updated annually. For franchisees, it is essential that you review this document in order to understand what you are getting into.
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Franchise Agreement
You are required to review and sign this agreement when you are ready to invest in a franchise. It is mainly a contract, included in the FDD that describes the responsibilities of both the franchisor and the franchisee. It will be your legal rescue if the franchisor doesn’t live up to its obligations.
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Master Franchise
Some chains are so large that managing franchises at a national level is difficult. For these businesses, bringing on master franchisors to oversee geographic locations makes sense. These master franchisors can serve all the functions that the franchisor can, but at the local level, offering better client support and interaction for you as the franchisee.
If you are looking for franchise opportunities in Indore, feel free to contact us now.