Small Business Franchises Key Terms

Common small business franchise terms to keep in mind

By Nikki Wheeler

There are many benefits with buying into a small business franchise. Franchises provide the power of a recognized brand, proven advertising techniques, purchasing information, employee training programs, technology, and quality assurance. The franchise's experience and knowledge in its given business is also a plus. A franchise minimizes the risk of failure, and buying into a well-known established franchise greatly increases the chance of success. Keep the following small business franchise opportunities key terms in mind when starting research into the different opportunities out there.

Investment

The initial investment, initial start-up fee or franchise fee for a small business franchise is the amount of money required upfront to buy the rights to use the franchise name. Depending on the franchise, this may include extra things like standard interior decor, employee training, national advertising and marketing.
Try: Get a better understanding of what a franchise fee entitles you to at Entrepreneur Media

Royalty fee

An annual royalty is required by almost all franchises to retain the right for continued brand name use. The royalty fees vary from franchise to franchise, but usually ranges between 3 and 12% of annual profits.
Try: Learn more about royalty fees from FranchiseFetch.com.

Franchise prerequisites

Franchise prerequisites are things that are required prior to applying for the franchise, and might include the initial investment, an up-front royalty fee and even a guarantee of minimum annual profits.
Try: Read more about franchise prerequisites in an article from the Franchise Update Media Group.

Distributorship

A distributorship is a type of franchise in which a business is granted the right to sell the parent company's product within a sole proprietorship or private business, such as an auto dealership selling Ford automobiles.
Try: The HJVentures website further explains what a distributorship is.

Trademark licensing

Trademark licensing, or brand name licensing, allows a business to sell a name brand product in conjunction with a separate business, like a restaurant selling Pepsi products, or a t-shirt store selling college t-shirts.
Try: Lawyers.com provides information regarding trademark licensing, including the definition of what trademark licensing is.

Business format franchise

A business format franchise is the most common type of franchise, which grants the right to use the franchise name, franchise logo, franchise business techniques or sell the franchise's products within the limitations set by the franchise.
Try: Read more about a business format franchise at DryCarpet Carpet Cleaning.