A-z Franchising Terms

A

Acknowledgement of Receipt
Included in the UFOC, it is the last page that you sign and return. It provides proof of the date that you received the UFOC.

Advertising Fee
An annual fee paid by the franchisee to the franchisor for corporate advertising expenditures; usually less then three percent of the franchisee's annual sales and usually paid in addition to the royalty fee. Not all franchisors charge advertising fees.

Advertising Fund
A continuing periodic payment to the franchisor that, like the royalty payment, can be a fixed amount or a percentage of gross sales .

Agent
An individual who can act on the behalf of another. An individual who acts on the behalf of a corporation and can legally bind the corporation.

Agreement
Also called the Franchise Agreement. It is the contract that you sign with a franchisor.

Amortisation as is amortisation schedule
In loan terms it is the periodic payment of interest and principal to pay down a loan. In accounting terms it is the periodic writing down of an intangible asset. It is similar to the concept of depreciation to write down the value of assets .

Amortisation Schedule
The schedule that's shows over time, usually monthly, the status of a loan and the principal and interest applied to the loan. Alternately, the schedule showing, over time, the amortisation taken against an intangible asset .

Anchor Tenant
Typically a type of tenant in a shopping center. In shopping malls this is usually a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center. In other centers the anchor tenant may be a supermarket or drug store, home improvement store, convenience store, national coffee brand such as Starbucks.

Approved Products
Proprietary products that a franchisee must purchase from the franchisor. Also, products that must be purchased from approved suppliers. The goal is to achieve uniform quality assurance among all franchisees.

Arbitration
A process in which a neutral third party hears both sides to a dispute and renders a decision. It is an alternative to using the legal process, which can be costly, and time consuming.

Area Development Franchise (a.k.a. Development Agreement, Master Franchise)
A type of multi-unit franchise, whereby franchise has no resale rights, but are rather are themselves directly responsible for meeting a mandatory development schedule for their given region.

Area Development Rights
The rights granted to a franchisee to develop a certain number of franchises within a specified geographic area, usually within a certain time frame.

Assets
In accounting terms, an asset is an item on the balance sheets of a company that has future economic value.

B

Balance Sheet
The balance sheet is a financial statement that's shows a company's assets, liabilities and equity as of a particular moment in time.

Block Exemption
The European Union concessions to franchising which bypass the normal EU anti-restrictive trade practices legislation seeking to protect competition - which, for example, 'exclusive areas' can be deemed to contravene

Broker
An intermediary who manages a sale and purchase. Brokers can represent either sellers or buyers. Different brokers can represent both a seller and a buyer.

Business Format Franchising
The franchisor licenses the franchisee to use the franchisor's product, service and trademark. The franchisor also teaches the franchisee the entire business format including marketing, selling, inventory, accounting and personnel procedures. Furthermore, the franchisor provides support via training and communications for the duration of their business relationship. Restaurants, retail and many service businesses are business format franchisors.

Business Plan
A plan that provides the objectives of a business and the steps necessary to achieve those objectives.

Buy-Sell Agreement
A legal document that details the provisions under which a business may be sold.

Break Even Point
Break even is reached when sales equals costs. Sales above the break-even point would generate profits.

C

Capital
Capital is cash in checking and savings accounts, insurance policy cash values, non-IRA stocks and bonds, and loan receivables due within 30 days.

Churning
This is a re-offer by franchisors of often failing franchises to unsuspecting franchisees. Often the location may well continue to fail even in new hands and be resold and the process of a resale continued.

Closely Held Corporation
A corporation who's shares are held by either family members or relatively few persons.

Company-owned Outlet
Some franchisors establish company-owned stores or offices that, in appearance, are identical to the franchised outlets.

Compound Interest
Interest paid on the principal of a loan as well as on the previously accumulated interest.

Continuous Training
The majority of franchisors will provide initial training for you as the franchisee and for your managers. The best franchise systems offer continuous training, as laid down in the franchise agreement, right through to the end of the franchise period.

Conversion Franchise
This is a franchise that permits existing businesses to join a national franchise system to use its recognized name and trademark and operating system.

Copyright
The exclusive right of a person to use, and to license others to use, an intellectual property such as a book, pamphlet, or other published material.

D

Default
A failure to perform as required by a contract.

Demographics
A range of factors that may influence consumer behavior in a specific trade territory e.g. age, income, house prices, industry, socioeconomic conditions .

Depreciation
Depreciation is the decrease in the value, over time, of a long term asset. It is measured using a depreciation schedule.

Design
The franchisor must maintain uniformity and its customer's continual acceptance of the brand at all locations within the franchise system. To do this, the design, the layout, the predominate colour schemes, signage and overriding logos are kept the same.

Designated Supplier
A supplier designated by the franchisor as the source for purchasing approved products. The use of a designated supplier for certain products guarantees the franchisor that each franchisee is providing the same product to its customers.

Disclosure
Revealing facts to others. In the sense used herein, these facts may be complimentary to the franchisor or may be uncomplimentary, such as disclosing a prior bankruptcy or litigation involving the franchisor or key persons as defendants.

Disclosure Document
All franchisor companies are required by the Federal Trade Commission (FTC) to provide this document to prospective franchisees at the first personal meeting to discuss the sale of the franchise and at least ten business days prior to the prospective franchisee signing a franchise agreement or paying the franchisor money to buy the franchise. The document aids the prospective franchisee"s evaluation of the franchisor company.

Dispute Resolution
Most franchise agreements written today include a provision for alternative dispute resolution methods because of the expense and delay involved in using the courts. Like some marriages, not all franchise relationships are compatible and disagreements do occur on occasion. The two most common methods of handling disputes are by arbitration and mediation.

Distributorship
A right granted by a manufacturer or wholesaler to sell a product to others. A distributorship is normally not a franchise. However, certain distributorship arrangements may qualify as a franchise, may be licensed or be adjudged a business opportunity requiring disclosure.

E

Earnings Claims
Claims made by the franchisor as to the past performance of franchisees or to the potential financial performance of a franchisee. If given, they must be disclosed in section 19 of the UFOC.

EBITDA
This is an acronym for “Earning Before Interest, Taxes, Depreciation and Amortisation”. It is a measure of cash flow available to meet debt payments.

Equity Investment
The amount available to be borrowed against your security property based on a formula calculated by the lending institution.

Estimated Initial Investment
A detailed listing of all fees and expenses you can expect to incur in starting your franchised business. This listing represents the total amount that you would need to pay or get financing for, including fees paid to the franchisor; estimates for furniture; fixtures and equipment; opening inventory; real-estate costs; insurance inventory; etc. This estimate should include a provision for working capital through the start-up phase.

Exclusive Territory
As a franchisee you can, with the consent of the franchisor, be given an exclusive area around your operation. This area can be large or small and no other franchisee or company owned business would be allowed to operate there.

F

FTC - Federal Trade Commission
The U.S. government agency that regulates franchising. Located in Washington , D.C.

Feasibility Study
Before a franchise system is developed, a prospective franchisor can hire a franchise-consulting firm, who examines the company's products and its market to determine whether a franchise system is feasible and eventually profitable.

Field Consultant
They work on behalf of the franchisor, checking that the franchisor's procedures as laid down in the operating manual are being operated in the franchise. A good field consultant acts as a bridge between the parties giving practical assistance as the franchise develops.

Fiscal Year
A 12 month period that's constitutes a company's financial year and does not correspond to a calendar year.

Franchise
An agreement, whether written or oral, for consideration, by which a person permits the distribution of goods or services under his trademark, service mark or tradename, during which time the grantor retains control over others or renders significant assistance to others. (This definition is substantially that of the Federal Trade Commission. See the Final Interpretive Guides, Federal Register, Vol. 44, No 166, Friday, August 24, 1979, p. 49.966 et.seg.) Counsel should also research definitions in controlled jurisdictions, applicable case law and formal and informal opinions rendered by State and Federal regulatory authorities.

Franchise Agreement
Sets forth the expectations and requirements of the franchisor. Describes the franchisor?s commitment to the franchisee. Includes information about territorial rights of the franchisee, location requirements, training schedule, fees, general obligations of the franchisee, general obligations of the franchisor, etc.

Franchise Consultant
A consultant who can give business advice with significant knowledge of the design, development and operation of a franchise system and what is expected in a successful franchise relationship.

Franchise Contract

The legal agreement between the parties which sets out the terms under which the Franchisee will operate the business. The terms usually include the following:

•  The right to use the trade name

•  The Franchisee's obligations

•  The Franchisor's obligations

•  The premises and the territory

•  Length of Franchise contract

•  Financial aspects such as initial franchisee fee and ongoing royalties

•  Renewal terms

•  Control of standards

•  Rights of sale

•  Performance targets

•  Termination

•  Effects of termination

Franchise Feasibility Studies
Franchising can be a highly effective method of financing expansion through the acquisition of outside capital. The objective of a franchise feasibility study is to determine the degree to which a company, whether a well-established concern, a small operation of one or two units, or simply a concept that bears the characteristics of a successful franchisor, may be successful as a franchisor.

Franchise Fee
A one-time fee paid by the franchisee to the franchisor to "buy into" the franchise. Generally, the fee reimburses the franchisor for the costs of initial training and support for new franchisees.

Franchise Lawyer
This is a lawyer specialising in the franchise industry.

Franchisee
The franchisee buys the right to run the business using the trademark and trading system. The business is run according to the procedures set out in the franchise operating manual and under the terms of the franchise agreement.

Franchisees should be:

•  Capable of absorbing new concepts quickly.

•  Willing to follow the franchisor's blueprint to the letter.

•  Positive people-persons imbued with the necessary enthusiasm to market the business and motivate staff.

•  Adequately resourced to meet the initial (capital investment) and ongoing (working capital) financial requirements of the business.

•  Able to manage and control the business, and willing to drive the brand at local level.

•  Prepared to co-operate with the franchisor's team as well as with fellow franchisees, and play an active part in programs offered by the network.

•  Determined to build the business into the best and most successful in the territory.

•  Convinced of the merits of the franchise and the brand, and prepared to defend both against possible attack by competitors or others.

Franchising
Neither an industry nor a business, but a method of doing business within a given industry. At least two parties are involved in franchising\: the franchisor and the franchisee. Technically, the contract binding the two parties is the franchise.

Franchisor
The franchisor owns the business system and associated trademarks or trade names. Franchisors allow franchisees to use these under license in a designated area and for a fee. They then support their franchisees both in starting their business and in continuing to make it work.

The franchisor should:

•  Know every facet of the business and have a hands-on approach to problem solving.

•  Be honest and forthright in all dealings.

•  Have operated the business he wishes to franchise for a reasonable period. Agreement exists that the minimum period should be one to two years but research has shown that most companies wait for six years or more before they roll out a franchise.

•  Have adequate financial resources to develop the concept and make the necessary investment into the brand.

•  Want to grow through others, and be prepared to share the rewards resulting from teamwork with franchisees.

•  Strive for excellence in every facet of the business and determined to grow.

FTC Rule 436
Passed in 1979, this law regulates the franchise industry by setting forth "disclosure" requirements and prohibiting franchisors from making earnings claims.

Furniture, Fixtures and Equipment
Also abbreviated as FF&E. Movable personal property used in the operation of a business.

G

Gross Sales
The revenue before any expenses are deducted. It is the sum of all money generated prior to deducting wages, product cost, taxes, interest, etc.

H

Head Lease
Locations where the franchisor has leased the premises and then sublets to the franchisee. There are a number of reasons for this practice. Landlords prefer to have the company financially committed in exchange for leasing prime locations, possibly providing tenant inducements of some free rent or financial assistance towards the tenant improvements such as lighting, floor covering and washrooms. Many times the franchisor finds an ideal site and leases the space before a suitable franchise applicant has been found. A turn key situation is where the premises are completely ready to open for business by the time the franchisee completes their training. If the head lease is not held and the franchisee negotiates the lease, the franchisor usually reserves the right to approve any lease, sub-lease or other tenant-landlord relationship which is established.

Housemark
A trademark used to identify the commercial operations of a company. The housemark may also be the company name (as in Dupont). This trademark may be used to identify one or more products and may be used in combination with other trademarks or trade names.

I

Identify Items
Items that display the registered trademarks of the franchisor. These items (such as paper products, uniforms, point of sale materials or exterior signs) are usually required to be used in a franchisee"s business.

Initial Investment
Usually includes the franchise fee and the total investment amount including working capital required to commence operating a franchise.

International Franchise Association (IFA)
Trade association for franchisors. Based in Washington , D.C. , the IFA requires its members to follow a rigid code of ethics.

J

Job franchising
The franchisee actually does the work that provides the service to their customers.

K

Know-How
The sum of the franchisor's secrets of doing business, also referred to as 'intellectual property'

L

Limited Partnership
A partnership in which there is one general partner and one or more limited partners. The limited partners are liable only to the extent of their capital contribution to the partnership. The general partner has unlimited liability.

LLC
A Limited Liability Company. It is created by an agreement of the owners / members. The members are liable only to the extent of their capital contributions. It provides many of the protections of a corporation. The LLC is not taxed at the business level, but ‘flows through' and the members are personally taxed.

M

Management franchising
The franchisee recruits, organizes and manages a team who provide the services

Manuals
These provide the day-to-day guidance on how the franchisor will expect the franchisee to operate. The field consultant will check that this is happening.

Marketing Plan
A technique by which franchises are to be sold. Includes the number of sales anticipated within a series of time periods (first year, second year, etc.), to whom those sales are to be made (profile of the individual, area franchising, sub-franchising), and the anticipated geographical expansion of the franchise system.

Master Franchisee
In master franchising, the franchisor grants the master franchisee the right to act as the franchisor in the target territory. The master franchisee may open his or her own outlets, sub-franchise or do both. The primary advantages to the franchisor of master licensing are: limited capital investment; tapping into the master franchisee's knowledge of the local market and only having to deal with one party .

Master Region
The region that a master franchisee acquires.

MBE
An acronym standing for Minority Owned Business. A minority owned business must be certified as such and can receive certain advantages in government contracts from that certification.

MSF - Management Service Fees
another term for Royalties, usually in the form of a fixed fee or percentage

Multi Level Marketing (MLM)
A form of distributorship in which you receive commission on your own sales and on the sales of others whom you sign up as distributors. Some MLMs are considered pyramid schemes and illegal in some states. Some are legitimate business opportunities. Any business of this nature should be investigated closely.

Multiple Unit Franchising
The franchisor awards the right to a franchisee to operate more than one unit within a defined area based on an agreed upon development schedule. If the franchisor decides to expand into a new geographical area which may be a city or province and does have the resources or staff to handle this growth themselves, a Master Franchise, Sub-franchise or an Area Development agreement is structured with a party who will use their resources to develop the franchise network by granting unit franchises to others or establish their own outlets, provide the training and local ongoing support.

N

National Alliance of Franchisees (NAF)
A national coalition organized in 1977 to represent and protect the interests and rights of franchisees. National headquarters are in Washington , D.C.

Net Cash Flow
The amount of cash remaining in a business after costs, interest and principal payments are made.

Non-compete Clause
A clause in a contract that prohibits you from entering into the same line of business for a specified time and within a specified area after you leave employment or after you terminate, sell, or otherwise leave a franchise.

O

Offer
An oral or written proposal to sell a franchise to a prospective franchisee upon understood general terms and conditions. Note\: Under state and federal regulations, the term "offer" is broader than the common law contract law definition.

Operating Manual
Comprehensive guidelines advising a franchisee on how to operate the franchised business. It covers all aspects of the business, including general business procedures not necessarily peculiar to the franchised business. It may be separated into different manuals addressing such subjects as accounting, personnel, advertising, promotion and maintenance.

Overhead
Expenses that do not change as production changes. A simple way to look at overhead is even if there were no sales, what expenses would still have to be met? Typically expenses such as lease payments, utilities etc.

P

Percentage Rent
A Lease may have a percentage rent fee clause, which means once a target sales figure has been reached, you will pay the landlord the greater of:
the amount determined by calculating a percentage of your gross sales i.e. 5% the regular monthly rent amount.

Person (by definition in franchise context)
An individual, partnership or corporation.

Personal Guaranty
Usually the owner(s) of a corporation cannot be held personally responsible for a corporation"s debt. If a loan requires a personal guaranty it means that the lender is asking the owner to personally guarantee the debt should the corporation default.

P&L Projections
The calculations, based on the franchisor's, pilot's or franchisees' experiences, which try to predict how soon franchisees can expect a return on their investment

Pilot Operation
Although franchisors often use their own experience as the 'pilot' basis for shaping a franchise package, P&L projections and training programme, it is recommended that a true independent pilot operation is tested out - which incorporates actual financial, organisational and logistical pressures to be faced by franchisees in different areas

Pro Forma
A balance sheet, profit and loss or cash flow statement that estimates income and expense sources. Assets, liabilities and net worth are forecast on the balance sheet. Pro forma statements issued by the franchisor to the franchisee should be based on actual operating results of the franchisor"s units or franchise establishments.

Product and Trade Name Franchising
This is where the franchisor provides the product through its manufacturing process, e.g. Pepsi, Ford. It is not a system or a way of running a business as in business format franchising.

Product Format Franchise
The ability to sell a particular companies product that does not constitute all that you sell. For example you may have a service station that sells a brand of gasoline, but you are not restricted on the other products or services that you can sell. Many times these are not true franchises, but can be considered distributorships.

Protected Territory
A designated area or geographic boundary granted to the franchisee by the terms of a franchise agreement. The franchisor agrees not to open another franchised or company owned business of a like or exact nature within the franchisees protected (assigned) territory

Q

Qualification Questionnaire
A document prepared by the franchisor to be completed by the prospective franchise, which provides initial information to the franchisor in order to assist him in determining whether or not the prospect is capable and motivated. Often a financial statement is included in the questionnaire format.

Quality Control
The method by which the franchisor enforces the rules of operation set forth in the operating manuals. Quality control involves regional coordinators visiting each franchisee.

R

Real Property
Land and anything permanently affixed to the land. If an item can be removed from real property without significant effort or damage, it is considered personal property.

Regional Development Agreement (a.k.a. Regional Franchisee, Regional Coordinator)
A franchise granted to develop or sell a person's franchise rights to a third party in a defined geographical area. A portion of the franchise fee is normally paid in advance for a certain minimum number of franchise outlets which may be activated by the Regional Franchisee or sold at a disclosed fee to an individual franchise buyer. This agreement normally awards a share of the initial full franchise fee and a percentage of the royalty payment.

Registration
A requirement in several states that specific information be submitted and approved by state regulatory authorities before franchises may be offered in that state. As compared to "disclosure" (see above), material contained in the registration is more extensive. For example\: a bond, fingerprints and pictures of principal officers may be required in a certain jurisdiction. Note\: the Federal Trade Commission has no provision for registration, thus the franchisor need only prepare an accurate and complete disclosure document conforming to the regulations.

Renewal
You are granted a particular time frame in which to conduct business as a franchisee in your initial Franchise Agreement. The franchise agreement should also state the terms and conditions to renew that business relationship. Renewal is the resigning of a Franchise Agreement after the initial or subsequent terms of the franchise expires.

Retro franchising or Refranchising
This comprises existing operations already located, which may or may not have been franchised before, but are now being run by the franchisor. He then decides to sell his operating business to an acceptable franchisee.

Royalty
A continuing payment to the franchisor that is payable on a periodic basis (usually weekly, biweekly, or monthly) throughout the term of the franchise agreement. In theory this royalty payment is for:

•  Compensation for the continuing services given by the franchisor (for training, field services, etc.)

•  Payback financing of the true market value of the franchise. Royalty payments can be either fixed amounts, based on percentage of gross sales, or based on a sliding scale, with graduated breakpoints

Rules of Operation (see Operations Manual)
Specific mandatory rules with which every franchisee and company outlet must comply. This document will change from time to time. By incorporation by reference in the franchise agreement, violation of the rules of operations allows the franchisor to cancel a franchise agreement.

S

SBC
SBC is an acronym for Small Business Centers. They are General Services Administration (GSA) offices that assist small businesses in acquiring federal contracts for goods and services.

Service Mark
The specific statutory definition (15 U.S.C. Sec. 1127) states "a mark used in the sale of advertising of services of one person and distinguishes them from the services of others." The word "trademark" is specifically associated with goods or products such as toothpaste or automobiles, whereas service marks relate to employment agencies, real estate chains and the like. Both are of equal stature and afforded the same protection under the law. (See Trademark)

Shareholder
A shareholder owns “shares” in a corporation for which they typically give capital to the coporation in exchange for shares of the corporation.

Sherman Antitrust Act
15 U.S.C., Sec. 107, as amended (1976), provides in general, that it is illegal to conspire by contract or otherwise, to restrain trade. Franchisee associations must be carefully monitored and franchise agreements drafted (except under certain case law exceptions), to avoid exclusive allocation of continents or fixing prices. As it affects franchising, the Sherman Act is applied to activities within a single state, whereas the Robinson-Patman Act can apply only to matters involved in two or more states (interstate commerce). The basic antitrust statutes have evolved since 1890 and each body of law has been enlarged and modified by the subsequent acts; some of which you will find in this directory. There are other anti-trust acts, notably the Federal Trade Commission Act, the Clayton Act and the state antitrust laws and "Little" FTC acts. In order to avoid antitrust problems, seek adequate legal counsel.

Shopping Center - Community Center
USA - Typically 100,000-350,000 sq. ft. on 10-40 Acres with 1-2 anchor tenants being supermarket and/or drug store, discount department store, home improvement store, or large specialty or discount apparel store. Anchor ratio 40-60 %. Trade area 3-6 miles.

Shopping Center - Lifestyle Center
USA - Typically 50,000 sq. ft. with one or more upscale national chain specialty stores. Usually located near affluent residential neighborhoods, the center type caters to the retail needs and lifestyle pursuits of consumers in its trade area. Design ambiance and amenities are conducive to casual browsing.

Shopping Center - Neighborhood Center
USA - Typically 30,000-150,000 sq. ft. on 3-5 Acres with at least one anchor tenant typically being a grocery store and/or drug store. Anchor occupancy ratio 30-50%. Trade area 3 miles. Designed to provide convenience shopping for the day-to-day needs of consumers in the immediate neighborhood.

Shopping Center - Outlet Center
USA - Typically 50,000-400,000 sq. ft. on 10-50 Acres. Manufacturer outlet stores. Trade area 25-75 miles.

Shopping Center - Power Center
USA - Typically 250,000-600,000 sq. ft. on 25-80 Acres with 3 or more anchor tenants of limited assortment. Anchor ratio 75-90 %. Trade area 5-10 miles.

Shopping Center - Regional Mall
USA - Typically 400,000-800,000 sq. ft. on 40-100 Acres with 2 or more anchor tenants being full line department stores, discount apparel store, mass merchant, fashion stores. Anchor ratio 50-70 %. Trade area 5-15 miles.

Shopping Center - Strip Center
USA - The smallest of centers whose tenants provide a narrow mix of goods and personal services to a very limited trade area. A typical anchor would be a convenience store like a mini-mart such as 7-Eleven.

Shopping Center - Super Regional
USA - Typically 800,000 sq. ft. plus on 60-120 Acres with 3 or more anchor tenants being similar to Regional Mall but having more variety. Anchor ratio 50-70 %. Trade area 5-25 miles.

Shopping Center - Theme Center
USA - Typically 80,000-250,000 sq. ft. on 5-20 Acres. Leisure, tourist-oriented, retail and service. Anchors are restaurants and entertainment.

SIC
SIC is an acronym for Standard Industrial Classification. It is the predecessor of the NAIC and is numerical identification system that classifies business into defined industries.

Slick
A pre-prepared piece of advertising material usually composed by the franchisor for the franchisee for use in local print media. It is "camera ready," meaning that newspapers or other media can use it without significant additional cost to franchisees for composition and makeup.

Sole Proprietorship
A form of business where one individual opens a business. Legally, the owner is the business and the business is not considered a separate legal entity. The owner is personally subject to unlimited legal liability for the business .

Subfranchisor
A type of multi-unit franchise, whereby franchisees act as independent selling organizations that are responsible for the recruitment and ongoing support of franchisees within their given region. Subfranchisor will have their own UFOC, which is sometimes incorporated into their franchisor's UFOC.

Sweat Equity
In the early stages of a business, an owner may invest their time without taking a salary in order to grow the business. This concept is known as sweat equity.

T

Tie-ins
Where part of the Agreement is for the franchisee to buy product from the franchisor - often justified in terms of quality control or cost

Total Investment
The amount of money estimated for complete set up of a franchisee's business, including the initial investment, the working capital, and subsequent additions to inventory and equipment deemed necessary for a fully operational and profitable enterprise.

Trade Area
For shopping centers the geographical area from which 60-80% of a center's sales originate.

Trade Secret
(a.k.a. Proprietary product or service) Knowledge in the possession of the franchisor that is revealed to the franchisee by the franchise transaction. Trade secrets may take the form of construction or operating procedures, a formula for the mixing of ingredients to prepare food or the classical customer list. Appropriate legal provisions written into the franchise agreement, such as a covenant not to compete, are important in protecting these trade secrets.

Trademark
The name associated with a product (see Service Mark). Prior to federal registration, the symbol "TM" or "SM" may be affixed near the word or words constituting the mark or symbol to inform the public that it is intended that the name be protected.

Turnkey
The franchisor is responsible for fully developing a "turnkey" franchise until or after, the doors are open for business.

Tying
Forcing a franchisee to purchase one product as a condition to the sale of another. Tying may be illegal if the products used in the franchise operation can be acquired from other sources at a more competitive price. The product must, however, be judged "equal to - or better than" the products specified by the franchisor in terms of quality.

U

Uniform Franchise Offering Circular (U.F.O.C., FOC)
This is the disclosure document that the franchisor must give you prior to selling you a franchise. A form of disclosure document containing required information to be supplied by the franchisor to the franchisee. Initially promulgated by the Midwestern Securities Commissioners to provide a uniform method of disclosure for the benefit of franchisor and franchisee, its use is permitted in non-regulated states by FTC Rule 436.

10-day and 5-day Rules
If you meet with a franchisor (or a representative of the franchisor) at a sales or other meeting held to discuss the sale or possible sale of the franchise, the franchisor or the franchisor's representative must give you a complete copy of their UFOC. If you do not have a face-to-face meeting with the franchisor (everything is done by mail, for example) they are still required to give you a complete copy of their UFOC at least 10 business days before any contract is signed or any money changes hands (the 10-day Rule). And you must be given a separate contract, with all blanks or negotiated parts completed (except signatures) at least five business days before any contract is signed or any money changes hands (the 5-day Rule).

V

Variable Cost
Any costs that vary with the level of production. For example, materials directly used to produce a product are variable costs. The more product produced, the more materials needed to produce the product.

Venture Capital
Money loaned by venture capitalists to new businesses that show the potential for above average growth, usually in new or unusual industries.

Vertical and Horizontal Competition
Applicable principally to price fixing or tying arrangements. Vertical connection deals with a buyer-seller relationship, as in franchisor-franchisee. (See Tying) Horizontal restraints of trade in franchising usually are concerned with potential price fixing arrangements among a group of franchisees (sometimes including company owned outlets) in a defined and homogeneous geographical area. Also in franchising, horizontal competitors are those offering a franchise or franchise product similar in price, whereas vertical competitors are similar in product or service but not in price. Price fixing is illegal at any level of an organization.

W

WBE
An acronym for Women Owned Business. In order to be a WBE, you must go through a strict certification process to ensure that the business is truly owned and controlled by a woman. Only 51% ownership and control need normally be demonstrated. The advantages to certification include certain federal government contract advantages and potential low interest loans.

Working Capital
A major cause of business failure is not having enough cash in the bank, trade credit, borrowing capacity or cash flow to meet start-up expenses and see the business through any unusual dips and changes in its daily activity. Initially funds are needed to pay first and last months rent, utility deposits, licenses and any number of incidental costs. As it takes time to build up a new business the first months are usually loss months, which need to be financed.