M

Management Fee: A fee paid by the franchisee to the franchisor for ongoing support and assistance with business operations, training, marketing, and other management-related services.

Manufacturer-Sponsored Financing: Financing options or programs offered by the manufacturer or supplier of equipment, inventory, or other goods necessary for the franchise business.

Margin of Safety: The difference between the break-even point and the actual performance of the franchise business, serving as a buffer or safety net against unforeseen expenses or lower-than-expected revenue.

Market Analysis: The assessment and evaluation of the target market's characteristics, competition, consumer behavior, and potential demand for the franchise product or service.

Market Development Funds (MDF): Funds provided by the franchisor to the franchisee to support the local marketing and promotional efforts in a specific market or region.

Market Saturation: A point at which the market demand for a product or service is fully met or exceeded within a specific area, potentially affecting the growth opportunities and profitability of the franchise business.

Marketing Fund: A collective pool of funds used by the franchisor to market the brand. Often, a monthly contribution to the ad fund will be paid by the franchisees alongside the other royalties.

Marketing Plan: A strategic document that outlines the franchisee's marketing goals, target audience, advertising channels, and promotional activities to generate awareness and drive sales.

Master Franchise: A franchise agreement in which the franchisor agrees to allow a franchisee to sell franchise units in a specific geographic region. A Master Franchisee may, but doesn't necessarily own one or more franchises in their allotted territory.

Master Franchisee Fee: The fee paid by the master franchisee to the franchisor for the rights to sell franchises in a specific geographic territory or region.

Master Lease Agreement: A lease agreement between the franchisor and the franchisee covering all or a group of franchise locations, allowing for centralized lease negotiations and management.

Minimum Performance Requirement: The minimum level of performance or sales that the franchisee must achieve within a specified period to maintain compliance with the franchise agreement.

Minimum Royalty Fee: The minimum fee that the franchisee must pay to the franchisor based on a fixed amount or a percentage of sales, regardless of profitability.

Minority Discount: A reduction in the valuation or purchase price of a partial ownership interest in a franchise business, generally offered when a franchise borrower acquires less than 50% ownership.

Mobile Franchise: A type of franchise business that operates on wheels or can be easily transported, allowing for flexibility in location and targeting specific markets or events.

Multi-Concept Franchisee: A franchisee who owns units of multiple different franchise brands. Some franchise brands prohibit multi-concept franchising for their franchisees, while others may actively seek franchisees who already own other brands.

Multi-Step Franchise Application Process: A franchise application process that involves multiple steps, such as submitting an initial application, attending interviews or meetings, undergoing background checks, and signing the franchise agreement.

Multi-Unit Development Agreement: An agreement where the franchisee commits to opening and operating a specified number of franchise units within a specific timeframe or territory.

Multi-Unit Development Incentives: Special incentives or discounts offered by the franchisor to encourage franchisees to develop multiple units or territories, such as reduced franchise fees or favorable financing terms.

Multi-Unit Franchisee: A franchisee who owns multiple franchise business units.

N

National Account: A large corporate or institutional customer that has multiple locations and operates on a national or multi-regional scale, providing franchisees with significant sales opportunities and potentially higher volumes.

National Advertising Fund (NAF): A fund to which franchisees contribute a percentage of their sales for national advertising campaigns conducted by the franchisor on behalf of all franchisees.

Net Book Value (7(a) and 504): This is an asset’s original price minus depreciation and amortization.

New Business (7(a) and 504): A business that has been in operations for 2 years or less at the time the loan is approved. If there is a change of ownership, the CDC must review the management and level of debt and determine whether an additional Borrower’s contribution of 5% is necessary.

Net Worth: Calculation of one's total value (total assets minus total liabilities). Many franchise brands require a minimum net worth in addition to a minimum liquid capital for prospective franchisees.

New Franchise Disclosure Document (FDD): The legal document provided by the franchisor to the prospective franchisee, containing crucial information about the franchise system, including the franchise agreement, financial statements, franchise fees, and obligations of each party involved.

New Franchise Unit: A newly established franchise location or business unit within a franchise system.

New Unit Financing: Financing options specifically designed to support the opening and establishment of a new franchise unit, covering costs such as construction, equipment, and initial inventory.

Next-Generation Franchise: A newer or updated version of an existing franchise concept that incorporates technological advancements, new product offerings, or enhanced business practices.

Non-Abatement Clause: A clause in the lease agreement that holds the franchisee responsible for paying rent even if the franchise business temporarily ceases operations or is affected by unforeseen events or circumstances.

Non-Binding Proposal: A preliminary offer or proposal that is not legally binding, allowing either the franchisee or the franchisor to modify or reject the terms without legal repercussions.

Non-Circumvention Agreement: An agreement that prevents the franchisee from directly contacting or conducting business with the franchisor's suppliers, vendors, or other business partners without the franchisor's approval.

Non-Compete Clause: A provision in the franchise agreement that restricts the franchisee from engaging in or starting a similar or competing business during or after the franchise term.

Non-Competitive Agreement: An agreement in which the franchisee agrees not to engage in any business that could be considered competitive with the franchise business during or after the franchise term.

Non-Disclosure Agreement (NDA): A legal agreement that protects confidential information shared between the franchisor and franchisee, ensuring that sensitive business information remains confidential.

Non-Endorsement Clause: A clause in the franchise agreement that states that the franchisor does not endorse or guarantee the financial performance of the franchisee's business or any particular earnings potential.

Non-Exclusive Territory: A territory or geographical area in which the franchisee operates but does not have exclusive rights, meaning that additional franchise units can be established or other franchisees can operate within the same area.

Non-Recourse Loan: A type of loan in which the lender has limited or no recourse to the franchise borrower's personal assets in the event of default, typically collateralized by specific assets or the franchise business itself.

Non-Refundable Franchise Fee: The portion of the franchise fee paid by the franchisee to the franchisor that is typically non-refundable regardless of whether the franchise agreement is terminated or if the franchisee is unable to open the franchise business.

Non-Traditional Financing: Alternative financing options that are not provided by traditional banking institutions, such as crowdfunding, peer-to-peer lending, or equipment leasing.

Non-Traditional Franchise: A franchise business that operates outside of the typical brick-and-mortar setting, such as a kiosk, food truck, home-based business, or online business.

Notice of Default: A written notice issued by the lender to the franchise borrower indicating their failure to comply with the loan agreement, such as missed or late payments, triggering certain actions or consequences.

O

Occupancy Cost: The cost associated with occupying and leasing a physical space for the franchise business, including rent, property taxes, insurance, and maintenance fees.

Off-Premises Catering: A service or option offered by certain franchise concepts where the franchisee provides catering services at a location separate from the main franchise unit, such as events, offices, or private venues.

Ongoing Royalties: Fees paid by the franchisee to the franchisor on a regular basis, usually calculated as a percentage of the franchisee's sales or revenue. These royalties contribute to ongoing support, brand development, and other services provided by the franchisor.

Online Ordering System: A digital platform or software provided by the franchisor that allows customers to place orders and make payments for products or services online, providing convenience and enhancing the customer experience.

Open Territory: An area or market where the franchisor has not yet granted exclusive rights to any franchisee, potentially representing an opportunity for new franchise development.

Opening Assistance: Support and guidance provided by the franchisor to the franchisee during the initial set up and launch of the franchise business, including training, marketing assistance, and operational support.

Operating Agreement: A legal document that outlines the internal management and ownership structure of a franchise business, often used for franchises structured as limited liability companies (LLCs) or partnerships.

Operating Capital: The amount of working capital needed to cover the day-to-day operations of the franchise business, including inventory, payroll, rent, utilities, and other expenses.

Operating Expenses: The ongoing costs and expenses associated with the day-to-day operation of the franchise business, such as rent, utilities, payroll, inventory, and marketing expenses.

Operations Manual: A comprehensive document provided by the franchisor to the franchisee containing detailed instructions, procedures, and guidelines for running and operating the franchise business according to the franchisor's standards and specifications.

Operations Support: Assistance and guidance provided by the franchisor to the franchisee in managing day-to-day operations, addressing operational challenges, implementing best practices, and ensuring compliance with the franchise system's standards.

Operating Company (7(a) and 504): An eligible small business actively involved in conducting business operations now or about to be located on real property owned by an Eligible Passive Company, or using or about to use in its business operations personal property owned by an Eligible Passive Company.

Options: Special rights or provisions that allow the franchisee to extend or renew the franchise agreement for an additional term or to expand their territory or business operations.

Organic Growth: The gradual and natural growth of the franchise business over time through increased customer base, sales, and market penetration, generally without relying heavily on acquisitions or mergers.

Origination Fee: A fee charged by the lender for processing a new loan application, covering administrative costs and due diligence associated with evaluating and originating the loan.

Out-of-Pocket Expenses: Costs incurred by the franchisee that are not reimbursed by the franchisor, such as travel expenses, marketing materials, or additional training.

Outlet: A term used to refer to a single franchise location or unit within a franchise system.

Outlets Per Million (OPM): A measurement used to determine the number of franchise units or outlets relative to the population density in a specific area, often used as a benchmark for expansion potential and market saturation.

Overhead Costs: The fixed and indirect costs associated with running the franchise business, such as administrative expenses, utilities, insurance, and other expenses not directly tied to production or sales.

Owner-Operator: A franchisee who actively manages and operates the franchise business themselves, as opposed to hiring a manager to oversee daily operations.

Owner's Draw: The amount of money that the franchise owner can withdraw from the business profits for personal use, often subject to certain restrictions specified in the franchise agreement.

P

Packager: An Agent who is employed and compensated by an Applicant or lender to prepare the Applicant’s application for financial assistance from SBA. SBA determines whether or not one is a “Packager” on a loan-by-loan basis.

Participant (7(a) and 504): A person or entity that is participating in any of the financial, investment, or business development programs authorized by the Small Business Act or Small Business Investment Act of 1958.

Patent: A legal protection granted to inventors or creators of unique products or processes, giving them exclusive rights to produce or use the invention and preventing others from using or reproducing it.

Payroll: The total amount of money paid to employees of the franchise business, including wages, salaries, benefits, and withholding taxes.

Percentage Rent: A form of additional rent paid by the franchisee to the landlord or property owner based on a percentage of the franchise business's sales, typically applicable when sales exceed a certain threshold.

Person (applicable for 7(a) and 504 business loans): Any individual, corporation, partnership, association, unit of government, or legal entity, however organized.

Person (applicable for 7(a) and 504 Standards of Conduct and Employee Restrictions and Responsibilities): An individual, a corporation, a company, an association, a firm, a partnership, a society, a joint stock company, or any other organization or institution.

Personal Guarantee: A guarantee provided by the franchise borrower, personally assuming responsibility for loan repayment and accepting liability in case of default or failure to repay the loan.

Personal Investment: The franchise borrower's own financial contribution toward the franchise business, often referred to as owner's equity.

Point of Sale (POS) System: A computerized system used at the franchise business location to facilitate sales transactions, track inventory, and generate reports.

Power of Attorney: A legal authorization granted by the franchise borrower to another individual, allowing them to act on their behalf in financial or legal matters related to the franchise business.

Pre-Opening Expenses: Costs incurred by the franchisee before the franchise business officially opens, such as training expenses, pre-launch marketing, and securing necessary permits or licenses.

Principal: The initial amount borrowed from the lender, excluding interest and other charges.

Private Equity: Funding provided by private individuals or investment firms in exchange for ownership or shares in the franchise business.

Pro Forma: Financial projections or forecasts that estimate future revenue, expenses, and profitability of the franchise business, often prepared during the loan application process.

Product Franchise: A type of franchise where the franchisor grants the franchisee the right to sell or distribute specific products under the franchisor's brand and trademarks.

Profit and Loss Statement (P&L): Financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, providing an overview of the franchise business's profitability.

Project (504): The purchase or lease, and/or improvement or renovation of long-term fixed assets by a small business, with 504 financing, for use in its business operations. Note: This SOP uses the term Project for 7(a) also.

Project Property (504): One or more long-term fixed assets, such as land, buildings, machinery, and equipment, acquired or improved by a small business, with 504 financing, for use in its business operations. Note: A legal document that outlines the specific terms of a loan, including the borrowed amount, interest rate, and repayment schedule.

Proprietary Software: Software or technology systems developed or owned by the franchisor to be used exclusively within the franchise system, such as a unique POS system or franchise management software.

Protected Products: Specific products or services granted exclusively to the franchisee within their defined territory, ensuring that no other franchisees from the same brand can offer those products or services.

Protected Territory: An exclusive geographic area allocated to a franchisee, ensuring that no other franchisees from the same brand can operate within that defined territory.

Public Offering: The process of offering shares of the franchise business to the public through initial public offerings (IPOs) or other means of issuing securities to raise capital.

Purchase Agreement: A legal document that outlines the terms and conditions of purchasing an existing franchise business, including the purchase price, assets included, and any stipulations or contingencies.

Purchase Order (PO): A document issued by the franchisee to the franchisor to request the delivery of specific products or goods needed for the franchise business.

Q

Qualified Franchisee: A franchisee who meets the criteria set by the franchisor for owning and operating a franchise business, such as financial qualifications, experience, and other specified requirements.

Qualified Independent Contractor (QIC): An independent contractor hired by the franchisee to perform specific services or tasks within the franchise business, meeting certain qualifications or requirements set by the franchisor.

Qualified Source (With respect to business valuations) 7(a): A “qualified source” is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations and is independent of the loan production function, not involved in the approval of the transaction, and must not have the appearance of a conflict of interest.

Quick-Service Restaurant (QSR): A type of franchise business that focuses on providing fast and efficient service to customers, typically offering a limited menu and quick turnaround times.

Quiet Enjoyment: The right of the franchisee to peacefully and undisturbedly use and enjoy the premises or territory granted to them under the franchise agreement, without interference from the franchisor.

Quota: A predetermined target or minimum requirement that the franchisee is expected to meet, such as sales goals, customer acquisition targets, or performance benchmarks.

R

Recurring Revenue: Ongoing revenue streams generated by the franchise business, such as royalties, fees, or subscription-based services, that provide consistent income over time.

Refund Policy: A policy set by the franchisor regarding the refund of fees or investments made by the franchisee in case of early termination or cancellation of the franchise agreement.

Regional Franchisee: A franchisee who holds the rights to operate and develop franchises in a specific geographic region, often responsible for recruiting and supporting individual franchisees within that region.

Registration State: A state where the franchisor is required to register their franchise offering or disclose franchise information before offering or selling franchises in that state.

Regulatory Compliance: The franchisee's duty to comply with applicable laws, regulations, and licensing requirements mandated by the government or regulatory bodies.

Renewal Option: A provision in the franchise agreement that grants the franchisee the option to extend the franchise term beyond the initial contract period.

Renewal: The process of extending the franchise agreement beyond its initial term, allowing the franchisee to continue operating the franchise business.

Renovation/Remodeling Costs: Expenses incurred by the franchisee in updating or refurbishing the franchise unit or location, often required by the franchisor to maintain brand standards.

Repayment Schedule: A predefined plan that outlines the timeline and installments for repaying the loan, including the amount, frequency, and duration of payments.

Repossession: The action taken by the lender to take possession of the franchise assets or collateral in case the franchise borrower defaults on the loan repayment.

Required Training: Training programs and sessions provided by the franchisor to the franchisee and their staff, ensuring that they receive proper instruction on operating the franchise business and following the franchisor's systems.

Resale/Transfer: The process of selling an existing franchise business to a new owner, subject to the approval of the franchisor.

Reserve Fund: A set-aside amount of money that the franchisee must maintain for unexpected expenses or emergencies related to the franchise business.

Restricted Territory: An area or geographic region where the franchisee is prohibited from operating, typically defined in the franchise agreement to avoid conflicts or competition between franchisees.

Retail Franchise: A franchise business that focuses on selling physical products directly to consumers through brick-and-mortar retail locations.

Return on Investment (ROI): A metric used to evaluate the profitability and efficiency of an investment, measuring the return or profit generated relative to the initial investment made by the franchisee.

Return Policy: The franchisor's policy outlining the terms and conditions for product returns and refunds provided to customers by the franchisee.

Revolving Line of Credit: A flexible form of financing that allows the franchisee to borrow funds up to a predetermined credit limit, repay the borrowed amount, and borrow again as needed.

Rights of First Refusal: A provision that grants the franchisor or another designated party the first opportunity to purchase or acquire the franchise business or specific assets if the franchisee intends to sell or transfer them.

Risk Assessment: Evaluation of potential risks and uncertainties associated with the franchise business or industry, aiming to identify and mitigate potential challenges and threats.

Royalty Fee: A recurring fee paid by the franchisee to the franchisor, typically calculated as a percentage of gross sales, in exchange for the ongoing support and use of the franchise system.

Royalty: Regular fees paid by the franchisee to the franchisor as a percentage of their sales or revenue, typically for ongoing support and the right to use the franchisor's brand and systems.

S

Sales Forecast: A projection of future sales and revenue for the franchise business, typically based on historical data, market analysis, and other factors that may impact sales.

Scalability: The potential for a franchise business to expand and grow, whether by opening additional units or expanding into new territories, markets, or regions.

Secured Loan: A loan that is backed or secured by collateral, such as franchise assets or property, which can be claimed by the lender if the franchise borrower defaults on loan repayment.

Single Unit Franchise: A franchise agreement where the franchisee owns and operates a single unit or location of the franchise business.

Site Development Costs: Expenses related to preparing the physical site or location for the franchise business, including construction, renovations, signage, and landscaping.

Site Selection: The process of choosing and evaluating a suitable location for the franchise business, considering factors such as foot traffic, demographics, competition, and accessibility.

Small Business Administration (SBA): A U.S. government agency that provides support and resources to small businesses, including loan programs and loan guarantees to help franchise borrowers secure financing.

7(a) Small Loans: Loans of $500,000 or less processed under Preferred Lender Program (PLP) authority or non-delegated through the Loan Guaranty Processing Center (LGPC). They exclude Standard 7(a) loans, SBA Express, Export Express, CAPLines, Export Working Capital Program (EWCP), and Community Advantage Pilot Program loans.

Standard 7(a) Loans: Loans greater than $500,000, processed under Preferred Lender Program (PLP) authority or non-delegated through the Loan Guaranty Processing Center (LGPC). They exclude 7(a) Small, SBA Express, Export Express, CAPLines, Export Working Capital Program (EWCP), International Trade loans, and Community Advantage Pilot Program loans.

SBA Lender (7(a) and 504): A 7(a) Lender or a CDC. This term includes SBA Supervised Lenders.

SBA Loan: The full amount of the 7(a) loan or the Gross Debenture amount of the 504 loan.

SBA Region: SBA divides the United States and its territories into 10 regions numbered 1-10. SBA Regional Offices support SBA District Offices and promote economic development growth and competitiveness within their geographic areas.

SBA Supervised Lender (7(a)): A 7(a) Lender that is either a Small Business Lending Company or a NFRL.

Securitization: The process of pooling and selling the unguaranteed portion of SBA-guaranteed loans to a trust, special purpose vehicle, or other mechanism, and the issuance of securities backed by those loans to investors in either a private placement or public offering.

Service Provider: An entity that contracts with a Lender or CDC to perform management, marketing, legal or other services.

Small Business Lending Company (SBLC): A nondepository lending institution that is SBA licensed and is authorized by SBA to make loans pursuant to section 7(a) of the Small Business Act and loans to Intermediaries in SBA's Microloan program. SBA accepts applications for SBLCs from time to time as published in the Federal Register.

SOP: SBA Standard Operating Procedures, as issued and revised by SBA from time to time. SOPs are publicly available on SBA's Web site.

Special Geographic Areas: Areas that include Alaska, Hawaii, State-designated Enterprise Zones, Empowerment Zones, Enterprise Communities, Opportunity Zones, and Labor Surplus Areas. An Opportunity Zone is an economically distressed community that has been nominated by the State and certified by the Secretary of the U.S. Treasury as a community in which new investments, under certain conditions, may be eligible for preferential tax treatment.

Start-Up Business: For the purpose of determining equity injection requirements for 7(a) loans, a business is a Start-Up Business if it has been in operation (i.e., generating revenue from intended operations) for 1 year or less.

Start-up Costs: The expenses incurred by the franchisee when establishing a new franchise business, including initial franchise fees, equipment purchases, lease payments, and marketing expenses.

Stock Keeping Unit (SKU): A unique code or identifier assigned to each different product or item sold by the franchise business, facilitating inventory management and tracking.

Store-in-Store Franchise: A franchise arrangement where the franchise business operates within another established business, typically sharing space, resources, or customer base.

Storefront: The physical location or premises where the franchise business operates, typically retail or service-based, accessible to customers.

Subfranchising: A franchise arrangement in which the franchisee has the right to grant franchise agreements to other individuals or entities within a specified territory on behalf of the franchisor.

Succession Plan: A plan or strategy for the transfer of ownership and management of the franchise business to another person or entity, often to ensure continuity and smooth transition in case of retirement, sale, or other circumstances.

Supplemental Guarantor: A person or entity that a Lender requires to provide a guaranty out of an abundance of caution and that is not otherwise required by SBA Loan Program Requirements to provide a guaranty.

Supplier Agreement: A contract or agreement between the franchisee and approved suppliers, specifying terms, pricing, and other conditions for the purchase of products or materials used in the franchise business.

Supply Chain: The network of suppliers, manufacturers, distributors, and logistics involved in the production, delivery, and distribution of products or materials for the franchise business.

Support Services: The assistance, guidance, and resources provided by the franchisor to the franchisee, including training, marketing support, operational support, and ongoing communication.

System Standards: Established guidelines and requirements set by the franchisor that the franchisee must adhere to, ensuring consistency and quality across all franchise locations.

System-wide Marketing Fund: A collective fund contributed by franchisees to finance marketing and advertising initiatives for the entire franchise system, typically managed by the franchisor.

System-wide Sales: The total sales generated by all franchise locations within the franchise system, used as a performance indicator for the overall success and growth of the franchise brand.

System-wide Training: Training programs provided by the franchisor to franchisees and their employees on various aspects of the franchise business, including operations, customer service, and brand standards.

T

Target Market: The specific demographic or consumer group that the franchise business intends to attract, sell to, and serve with its products or services.

Technical Support: Assistance provided by the franchisor or designated personnel to the franchisee in addressing technical issues, troubleshooting, and resolving operational challenges related to systems, equipment, or technology.

Term Length: The specific timeframe, usually expressed in years, for which the franchise agreement is valid before it needs to be renewed or terminated.

Term of Agreement: The specified length of time outlined in the franchise agreement during which the franchisee is granted the rights to operate the franchise business.

Term Renewal: The process of extending the franchise agreement beyond its initial term, subject to the fulfillment of certain requirements or conditions set by the franchisor.

Term: The duration or length of time specified in the franchise agreement that outlines the franchisee's rights and obligations in operating the franchise business.

Territory Exclusivity: A provision in the franchise agreement that grants the franchisee exclusive rights to operate within a defined territory, ensuring minimal competition from other franchisees of the same brand.

Territory: A designated geographic area that is granted to the franchisee by the franchisor, outlining the exclusive rights to operate the franchise business within that specific region.

Third-Party Financing: Obtaining financing for the franchise business from a financial institution or lender other than the franchisor or Small Business Administration (SBA).

Third Party Lender: Usually a financial institution that provides the Third Party Loan and typically has a first lien on the project collateral. SBA does not permit the CDC to be the Third Party Lender on Projects financed by the CDC.

Third Party Loan: A loan from a commercial or private lender, investor, or Federal (non-SBA), State or local government source that is part of the Project financing.

Timely Payment: The prompt and punctual fulfillment of financial obligations, such as loan repayments, franchisor fees, royalties, and other expenses, within the agreed-upon timeframe.

Total Investment: The overall cost associated with establishing and operating the franchise business, including initial franchise fees, equipment, leasehold improvements, inventory, and other startup expenses.

Trademark: A legally registered symbol, logo, name, or design that represents the brand and distinguishes it from competitors. Franchise borrowers must adhere to trademark usage guidelines set by the franchisor.

Training Fee: A fee charged by the franchisor to cover the costs of initial and ongoing training provided to the franchisee and their employees.

Training Manual: A comprehensive document provided by the franchisor that serves as a guide for the franchisee, outlining operational procedures, standards, brand guidelines, and best practices.

Training: The process of educating and instructing the franchisee and their staff on the operations, protocols, and standards set by the franchisor to ensure consistency across franchise locations.

Transfer Fee: A fee imposed by the franchisor upon the transfer of ownership or sale of the franchise business from one franchisee to another.

Transfer: The process of transferring ownership of the franchise business from one franchisee to another, subject to the approval and conditions set by the franchisor.

Transferability: The ability for a franchisee to transfer or sell their ownership rights and obligations to another party, subject to the franchisor's approval and any specified conditions.

Transparency: The practice of openly and clearly communicating information, financials, policies, and other relevant details between the franchisor and the franchisee, fostering trust and accountability in the franchise relationship.

Turnkey Operation: A franchise business model where the franchisor provides the franchisee with a fully equipped and operational business, ready to start operations immediately upon taking ownership.

Turnover: The act of discontinuing or terminating a franchise agreement, usually due to the franchisee's decision to exit the business, failure to meet performance requirements, or other specified reasons.

U

UFOC (Uniform Franchise Offering Circular): The former name for the Franchise Disclosure Document (FDD), which provides detailed information about the franchise opportunity, including the franchisor's background, fees, obligations, and other important disclosures.

Underwriting: The process of evaluating the financial condition, creditworthiness, and risk profile of a franchise borrower to determine if they qualify for a loan and the terms and conditions of the loan.

Unencumbered Franchise Agreement: A franchise agreement that is not legally restricted or subject to any unresolved issues, allowing it to be transferred or assigned to another party without complications.

Unencumbered Funds: Cash or liquid assets that are available to the franchise borrower without any liens, encumbrances, or restrictions placed on them.

Unforeseen Circumstances: Unanticipated events, situations, or changes that may arise during the course of operating the franchise business and potentially impact its financial performance or overall operations.

Uniformity: The consistent application of brand standards, operating procedures, and customer experience across all franchise units, ensuring a unified and recognizable brand identity.

Unilateral Termination: The termination of the franchise agreement initiated by only one party, either the franchisor or the franchisee, without the agreement or consent of the other party.

Unique Selling Proposition (USP): The distinctive feature, characteristic, or value proposition that sets the franchise business apart from its competitors and encourages customers to choose its products or services.

Unit Economics: The financial performance and profitability analysis of an individual franchise unit or location, including factors such as revenue, expenses, profit margins, and return on investment (ROI).

Unit Franchise: A franchise agreement where the franchisee owns and operates a single unit or location of the franchise business.

Unit Level Economics: Financial analysis that focuses on the specific financial performance and profitability of an individual franchise unit or location.

Unit-Level Support: Assistance and guidance provided by the franchisor to the franchisee at the individual unit or location level, such as marketing support, operational guidance, and ongoing training.

Unsecured Loan: A loan that is not backed by any collateral or specific assets, relying solely on the borrower's creditworthiness and ability to repay.

Unsuccessful Outlet: A term used to refer to a franchise unit or location that has not been profitable or has failed to meet performance expectations.

Upfront Fee: Any initial fee or payment required by the franchisor, including the initial franchise fee, training fees, or other one-time charges payable before or during the startup phase.

Upgrade Fee: A fee levied by the franchisor when a franchisee chooses to upgrade or convert their existing franchise unit to a higher-tier or more comprehensive franchise model.

Upgrade Option: A provision in the franchise agreement that grants the franchisee the opportunity to upgrade their current franchise unit to a larger or more advanced model, with additional features, products, or services.

Upselling: The practice of persuading customers to purchase additional or higher-priced products or services than what they initially intended or requested.

User Fee: A recurring fee paid by the franchisee to the franchisor for the ongoing use and access to proprietary software, technology platforms, or other specialized systems provided by the franchisor.

Utilization Ratio: The proportion of a loan or credit facility that is currently being utilized compared to the total available credit limit or loan amount.

V

Validation Period: The timeframe during which the prospective franchisee can contact and interview existing franchisees to gather information and insights about the franchise opportunity.

Validation Report: A summary or documentation of the feedback and insights gathered during the validation process from existing franchisees, providing prospective franchisees with a better understanding of the franchise opportunity.

Validation: The process of gathering feedback and insights from existing franchisees in the system to assess their satisfaction and success with the franchisor and the franchise business.

Value Engineering: The process of analyzing and optimizing the costs and value of a franchise project or operation, seeking ways to maximize value while minimizing expenses.

Value Proposition: The unique combination of benefits, features, and advantages that a franchise business offers to its customers, setting it apart from competitors and attracting customers.

Value-Added Tax (VAT): A consumption tax imposed on the value added at each stage of the production and distribution process of goods and services. Franchisees may be responsible for collecting and remitting VAT on sales.

Value-in-Use (VIU): The perceived worth or value of a product or service to the end-user, taking into consideration its usefulness, effectiveness, and overall benefit.

Variable Costs: Expenses that vary in direct proportion to the level of business activity or sales volume, such as inventory costs, raw materials, and sales commissions.

Variable Interest Rate: A fluctuating interest rate on a loan or financing arrangement that changes periodically based on market conditions or a predetermined index.

Vendor Financing: A financing arrangement in which the franchisee obtains funding directly from a vendor or supplier to purchase equipment, inventory, or other items necessary for operating the franchise business.

Vendor Relations: The management and cultivation of relationships with vendors and suppliers, including negotiations, contract agreements, and ongoing communication.

Vendor: A supplier or third-party business that provides products, equipment, or services to the franchisee for operating the franchise business.

Venture Agreement: A legal agreement between two or more parties that outlines the terms, responsibilities, and rights associated with a joint business or investment venture.

Venture Capital: Investment funds provided by external investors or firms to support the growth and development of a franchise business in exchange for equity or ownership stakes.

Venture: A business undertaking or project involving significant risk and the potential for financial returns, often associated with startups, new business ventures, or expansions.

Vertical Integration: The practice of a franchise business owning or controlling the entire supply chain, from production to distribution, allowing for greater control over quality, costs, and efficiency.

Vertical Market: A specific industry, niche, or target market that a franchise business focuses on, tailoring its products or services to meet the unique needs of that market.

Vesting: The process by which a franchisee earns ownership or entitlement to certain benefits or rights over time, such as the right to renew the franchise agreement or participate in profit-sharing programs.

Veteran: A person who served in the active military, naval, or air service (i.e., the United States Army, Navy, Marine Corps, Air Force, and Coast Guard, including the reserve components thereof), and who was discharged or released therefrom under conditions other than dishonorable. The term “discharge or release” includes (A) retirement from the active military, naval, or air service, and (B) the satisfactory completion of the period of active military, naval.

Visitability: The accessibility and ease with which a franchisor can conduct inspections, visits, or audits of the franchise unit to ensure compliance with brand standards, operating procedures, and quality control measures.

Volume Rebate: A discount or refund provided to the franchisee by the vendor or supplier based on the volume or quantity of products or services purchased.

W

Wage Expense: The total amount of wages or salaries paid to employees of the franchise business, including regular pay, overtime, bonuses, and benefits.

Wages: The compensation paid to employees of the franchise business for their services rendered, typically on an hourly or salary basis.

Warranty Period: The duration during which the warranty provided by the franchisor is valid, typically covering defects or malfunctions that may occur within a specified time frame.

Warranty Service: The provision of repairs, replacements, or maintenance services by the franchisor for products or equipment covered under a warranty.

Warranty: An assurance or guarantee provided by the franchisor to the franchisee regarding the quality, performance, or functionality of products or services.

Web Presence: The overall online visibility of the franchise business, including its website, social media accounts, and other digital platforms where customers can find information about the brand.

Web-based Training: Training programs or modules provided by the franchisor through online platforms or the internet, allowing franchisees and their employees to access training materials remotely.

Website Development: The creation, design, and construction of a franchise business's official website, often requiring the assistance of web developers or agencies.

Wholesaler: A business entity that buys products in bulk from manufacturers and sells them to retailers or other businesses, often providing discounted pricing to franchisees.

Wire Transfer: A method of electronically transferring funds from one bank account to another, often used for making loan payments or receiving funding.

Withdrawal Period: The timeframe specified in the franchise agreement within which the franchisee can withdraw from the agreement without incurring significant financial penalties.

Workforce Management: The processes and strategies used by the franchisee to effectively manage and schedule their employees, ensuring optimal productivity and operational efficiency.

Workforce Productivity: The measure of how effectively and efficiently the franchise business's employees utilize their time and skills to achieve desired outcomes.

Working Capital Loan: A type of loan specifically designed to provide additional funds for working capital needs, allowing the franchisee to cover short-term expenses or seize growth opportunities.

Working Capital Ratio: A financial ratio that measures the franchise business's ability to meet its short-term financial obligations, calculated by dividing current assets by current liabilities.

Working Capital Requirement: The amount of working capital necessary for the franchise business to maintain its daily operations and cover short-term expenses.

Working Capital: The funds available to the franchise business for day-to-day operations, covering expenses such as inventory, payroll, rent, and utilities.

Worldwide Expansion: The global expansion of the franchise brand into international markets, often involving the establishment of new franchise units in different countries.

Wrap Fee: A fee charged by the franchisor or a third-party provider for bundling services or resources, such as marketing support, training, and operational assistance.

Y

Yard Sign: A signage or display placed outside the franchise unit to promote the brand, products, or services to passersby and potential customers.

Yardstick Approach: A valuation method that uses industry benchmarks and standards to estimate the value of a franchise business.

Year-End Financial Statements: Financial reports prepared at the end of the fiscal year that provide a summary of the franchise business's financial performance, including balance sheets, income statements, and cash flow statements.

Year-to-Date (YTD): The time period from the beginning of the fiscal year to the present, used for tracking financial performance and comparing it to previous periods.

Year-to-Year Comparison: A financial analysis technique that compares the performance and results of the franchise business from one year to the same period in the previous year to assess growth or declines.

Yearly Budget: A financial plan that outlines the franchise business's anticipated income, expenses, and targets for a specific upcoming year.

Yearly Royalty: A fee or percentage of revenue that the franchisee pays to the franchisor on an annual basis as a part of the franchise agreement.

Yearly Sales Forecast: A projection or estimate of the franchise business's anticipated sales and revenue for the upcoming year based on historical data and market trends.

Years in Operation: The number of years that the franchise business has been in operation since its inception or the first unit opening.

Yen: The currency of Japan. In international franchising, yen may be used as the currency for financial transactions between the franchisor and franchisee in Japan.

Yield Curve: A graphical representation of the relationship between the interest rates and the time to maturity for a range of bonds or loans.

Yield Management: A pricing strategy used by the franchise business to maximize revenue and occupancy rates by adjusting prices based on demand fluctuations.

Yield Spread: The difference between the interest rates of two different types of financial instruments or loans, often used in assessing market conditions and pricing.

Yield Strength: The maximum amount of stress or pressure a material or structure can withstand before permanent deformation or failure occurs.

Yield-on-Cost: A measure that calculates the return on investment for a franchise business based on the initial cost of acquiring the business and the current income generated.

Yield: The return on an investment, usually expressed as a percentage, representing the income or profits generated by the franchise business.

Young Franchise: A term used to describe a franchise business that is relatively new and has been in operation for a short period.

Young Franchisee: A franchisee who is relatively young, usually referring to age, and has recently entered the franchise business industry.

Your Franchise Choice: A term used to emphasize the franchise borrower's personal selection and decision of a specific franchise brand or concept.

YTD Gross Profit: The total revenue generated by the franchise business minus the cost of goods sold and direct expenses incurred during the year-to-date period.

Z

Zee: This is an informal term often used in the franchise industry to refer to a franchisee. The term comes from the last letters of the words franchisee and franchisor, with "Zee" representing the franchisee and "Zor" representing the franchisor.