Anytime you venture into new territory, especially in business, there is a learning curve to understand the proper terminology. Franchising is no different. Understanding the terms will make the research process, decision-making and ownership less complicated. There are some very necessary franchising terms to know as well as best practices.
Normal Operating Procedures
As you seek an ownership opportunity, be cognizant that franchisors should always be transparent with their deliverables. Whether it’s information about financials or operations, there should never be reluctance on their part to discuss that with you. Buyer beware if there are a lack of details given.
Being well-informed also means knowing the brand’s reputation within the industry, among customers and with franchise owners, while also bearing in mind whether they are an emerging or established brand.
Talk to Fellow Franchisees
It is quite normal, acceptable, and encouraged to receive feedback from current and former franchise owners. Speaking with these business owners can be very informative and eye-opening in evaluating how franchisors treat their owners beyond the signing of a contract. As a new or potential franchise owner, this is an important part of your comprehensive due diligence process.
Understanding the Lingo with Common Franchising Terms
Franchising terms may refer to more than the length of the contractual agreement between franchisor and franchisee, but let’s start there. Usually, the contract between these two parties will be between five to 20 years. Many agreements can be renewed after the term expires and everyone is amenable to continuing the business relationship.
As we take a deeper dive, here are a few common franchising terms to better assist you during your purchase process.
Franchising gives you the opportunity to be in business for yourself while utilizing a proven model that has been market-tested and provides expansion for the brand. For a franchise fee—a one-time upfront cost or entry fee—a franchisee receives the rights to use a ready-made business model while following guidelines and restrictions set in place by the franchisor. They may also benefit from the experience and expert counsel provided by the brand.
Your overall initial investment is the funding you will need to set up your franchise unit or business, while accounting for new business money flow. Often this capital can be raised through loans or partnerships.
As a franchisee, you are allowed to operate your franchise unit within a certain territory. This is the specific area you are granted to conduct your business. Often a franchisor will have protected territories which don’t allow a fellow franchisee to compete in business within a certain space.
Every franchise must maintain an up-to-date Franchise Disclosure Document (FDD). This is a legal document that includes pertinent financial information about the franchise and must be made available to individuals interested in buying a franchise in the U.S. Providing this document is part of the pre-sale due diligence process because it discloses how the franchise operates.
Depending on the brand, you may also have marketing or advertising fees that are paid on a contractually agreed upon basis. The franchisor, in turn, provides professional marketing support for the entire brand.
Ongoing royalties may include any other recurring franchise fees that are used to grow the franchise. These may be collected as percentage of your monthly gross sales.
You will want to be part of a franchise Discovery Day to learn more about the brand and ask pertinent questions about why you should join the brand. This is a meet and greet day at corporate headquarters where you can glean more details about the franchise itself, both by speaking with the executive team as well as other franchisees.
Red Flags
It is essential to carefully look over your prospective franchisor’s FDD thoroughly. It’s often encouraged to have a franchise lawyer look at both your franchise agreement and the FDD before signing a contract, to ensure you are knowledgeable about the agreement. Likewise, the amount of information you can glean from current and previous franchisees and Discovery Day can prove invaluable before you commit to a new business.
Here are some very important things to keep in mind before signing with a franchisor:
- Make sure there is an ample amount of business or franchising experience from the leadership team.
- See if there is any pending or current litigation against the franchise.
- Look out for bankruptcies.
- Has there been steady growth?
- Check if there is high turnover rate with franchise units
Your Investment with Wild Birds Unlimited
What you’ll find with Wild Birds Unlimited, beyond a solid and long-standing business model, is transparency. We want to provide all of the information possible about our brand because we want this partnership to be a good fit for all parties. If we don’t have the information that you are seeking, just ask, and we are more than happy to find it. We can provide knowledge about how to invest in a franchise and details to make your decision process a bit easier.
We are leaders in the wild bird feeding industry and there’s a reason our flock has grown to more than 350 locations in 40 years—we do business right. Not only for our customers but for our franchise owners.
If you are interested in taking the next steps to learn more, Get Started.