Whether you are new to the world of franchising or have been a seasoned employee of a company, there are probably several terms with which you will need to familiarize yourself before you venture into the world of franchising. It is especially important to become familiar with these terms to ensure you have a better opportunity to own a successful franchise. The following are definitions of just a few of the terms you will hear commonly used in the world of franchising.

A business format franchise is most likely the type of franchise you will be operating. This is a type of franchise that sets you as the owner of the business and provides you with the opportunity to distribute and sell that company’s product. With this type of franchising, you will be given the proper marketing tools to perpetuate that company’s brand. In order to successfully operate this franchise you will have to be aware of the amount of capital required, which is the amount of capital you are required to have on hand.

When you are operating your franchise, you will have a designated supplier. This is a pre-approved supplier of the products and services you will be distributing with your company. Your franchise’s parent company is responsible for approving this designated supplier. Also, once you have invested into opening a franchise, you will have certain area development rights, which give you the right to open your franchise stores in different specified areas.

As a franchise operator, you will be closely monitored and held accountable for your practices by the Federal Trade Commission, or FTC. This is the government body responsible for regulating a large variety of business and trade practices. The commission also regulates the franchise industry. You will be held responsible to FTC Rule 436, which sets disclosure requirements for the franchise industry and will prohibit you as a franchiser from making earnings claims.

There is a plethora of terms in the franchise industry that should be learned in order to ensure you are well educated with this particular industry. It is a wise idea to consult a lawyer or other business professional if you are unclear about any of the terms or rules you come across.