Discovery Point Blog
7 Common Franchising Terms You Need to Know
Like almost all industries, the franchise industry has its own lingo. If you’re new to franchising, you’ll have many to familiarize yourself with, both industry wide and with the specific brand you ultimately choose. This can lead to stress, especially if you’re first introduced to them in the context of an important business decision.
With so many opportunities within the franchising industry, we never want entrepreneurs to feel put off by jargon and technical language. To help you in your research, we’re defining and providing context for 7 of the most frequently used terms in the franchise industry.
With the insights understanding this language provides, you can make better business decisions and see the many benefits of franchising unveiled.
Franchising Terms You Should Know
- Franchise Disclosure Document or FDD
“FDD” is a term you’ll run into quite a bit if you’re researching a franchise to purchase. FDD stands for Franchise Disclosure Document, but the term “disclosure statement” is also frequently used.
This legal document provides essential information about the franchisor and the franchise business. Prospective franchisees should review this document thoroughly as part of the pre-sale disclosure process. The franchisor should provide this document to help you with your due diligence as you begin discussions prior to signing the franchise agreement.
- Franchise Agreement
Another important document is the franchise agreement. This is the legal contract between the franchisor and franchisee in written form.
The franchise agreement explicitly states what each party is responsible for, and both parties must agree to these terms to move forward with the sale.
- Discovery Day
Franchisors typically invite prospective franchisees to the corporate office to learn more about the company’s operations and meet the franchising team. This experience is known as a “Discovery Day.”
Discovery Days are crucial to the decision-making process for prospective franchisees as they offer an up-close look at what they can expect from franchise ownership. Discovery Days usually take place as one of the final steps before a franchise purchase.
- Corporate Location(s)
Many franchise companies have company-owned locations or units in addition to locations that are owned by franchisees. The locations that are owned and operated by the corporate entity are thus known as “corporate locations.”
For example, Discovery Point’s network of nearly 50 child care centers across the Southeastern United States includes both franchise locations and corporate locations.
- Franchise Fee
Franchisees are responsible for paying multiple fees to the franchisor. One of these fees is the “franchise fee.” Payment of this fee allows the franchisee to operate a business under the franchisor’s brand name, utilize their trademarks, and take advantage of their proprietary information and materials.
At Discovery Point, we’re proud to have one of the lowest franchise fees in the industry, making our franchise opportunities more accessible to a wider range of entrepreneurs. We also offer a 10% discount on the franchise fee for veterans.
- Royalty Fee
Most franchisors charge a royalty fee in addition to a franchise fee. The royalty fee is a payment based on the franchisee’s revenue. This fee could be charged at monthly or yearly intervals, as a flat rate, or as a percentage of sales.
At Discovery Point, we choose to maintain flat-rate service fees so our franchisees can keep more of their profits. Additionally, we discount this fee for the first 12 months to give new Discovery Point owners the room they need to grow.
- Third-Party Financing
Franchisees often opt to acquire financing from third-party financing agents, which are usually banks or other financing sources. Many Discovery Point franchisees finance their business ventures through third-party financing.
Banks and lending institutions appreciate the stability of the child care franchise industry and recognize Discovery Point’s record of success. There are several loan options available for Discovery Point franchisees.
Taking the time to educate yourself on the ins and outs of the franchise industry can help you make informed choices and create a successful business. With a better understanding of how franchising works and the terms commonly used in this industry, you can more confidently navigate the decision-making process and gain a better idea of what to expect as a franchisee.