How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
The deeper you get into your Canadian franchise research, the more terms you'll come across that you may not be too familiar with. At this phase, you'll likely be comfortable with "franchising 101" terms such as "franchise agreement" and "disclosure document," so it's time to learn more about the less common words you may start seeing.
Brand or advertising fund contribution
Contributions to an advertising or brand fund is money you're required to give the franchisor for a fund that is used for brand-building purposes, such as marketing and advertising. This expense is often due monthly and is based on a percentage of the gross revenue you earn. It's important to figure this expense into your financial calculations as it's often separate from other costs you'll have.
Turnkey franchising
With a traditional franchise, you often work with the franchisor to select your business' location. You also may make decisions about the building's format or its interior design, depending on the brand. You're responsible for opening day inventory and all the other things that go into opening a new business, but a proper franchise system will support you in this. With a turnkey franchise, however, it's the franchisor who finds the location and develops the business, which is then transferred to the franchise in a state that's ready for operation.
Combination franchising
Also known as "piggyback franchising", combination franchising is basically a business that's within another business, such as two different franchises operating in the same space. This is something that is often seen with smaller, niche market brands who combine with a larger merchandiser or are inside a location that is selling more general merchandise. A branded coffee bar inside a convenience store location, for example, may be an example of combination franchising.
Royalty fee
Royalty fees are something that can cause some confusion for new prospective franchisees. This is a continuing fee you will pay in exchange for access to your franchisor's system, brand image and association trademarks, and other things. The royalty is not part of your initial investment and is continual for as long as you own your business. Usually, the royalty is a percentage of your gross revenue, but in a few cases, it's a flat fee. It's important that you fully understand the terms of the royalties for any brand you are considering as this naturally impacts your bottom line.
Any time you come across franchise terms you do not understand, make sure you take the time to research what they mean. The best approach to franchising is to be as informed as you possibly can be before you make any significant decisions.
