Favorable external environment and faith of experts in the Indian economy are reasons enough for aspiring entrepreneurs to dream big. You must try to gain as much knowledge as possible if you are an aspiring entrepreneur who wants to start their journey with franchising. Since research is an essential part of your business planning, gaining knowledge may prove to be a powerful tool when selecting or screening a franchisor. Let’s take a look at the most commonly used acronyms from the franchise industry and their uses.
FA – Franchise Agreement
An FA or Franchise Agreement stands for a set of documents in which the franchisor enlists the duties, rights, and obligations of the franchisee. It becomes a legal binding document once both parties sign it, setting forth the tone of their professional relationship. Typically, the terms listed in the FA remain constant throughout the contract.
FDD – Franchise Disclosure Document
FDD provides prospective franchisees with the validated information so that they can make an informed business decision. The FDD comes into the picture even before the main agreement to allow the applicants to know the franchisor’s background, history, performance, and future business plans. It also enlists a host of financial data as well as information regarding the distribution channels.
BFF – Business Format Franchising
BFF is the business format wherein the franchisee can run the business independently by taking leverage of an established brand name and trademark. Although each franchise should look and function the same and provide identical quality, they are independently owned and operated. The franchisor trains the franchisees to make them well-versed with the nuances of their business model so that every outlet functions uniformly.
COCO – Company Owned Company Operated
Franchises that are owned and operated under the direct guidance of the company staff follow the COCO model of franchising. This model is often strategically opened in locations that can help it earn revenue for self-sustenance. The brand keeps a keen eye on such stores and ensures the customer gets the first-hand experience. Conversely, these stores are often burdened with earning high revenues to maintain brand value.
FOCO – Franchise Owned Company Operated
Companies that have big expansion plans but cannot afford yet another capital expenditure opt for this model. In this model, the franchisee owns the outlet, but the franchisor handles all operations. This model often guarantees profit sharing between both parties, and the franchisee holds the right to question the franchisor in case of unsatisfactory performance.
FOFO – Franchise Owned Franchise Operated
Companies that have the vision to increase revenues opt for the aforementioned model. Enabling themselves to penetrate new markets with the help of local business people. The franchisor helps set up the store, hire staff and then hands it over to the franchisee. The franchisee, however, is still expected to follow the guidelines; the franchisor owns the right to penalize or pull out the outlet if it’s not up to the standard.
COFO – Company Owned Franchise Operated
This model ensures reduced operational expenditure. That is because the franchisor leases the operations to a franchisee after providing proper training(s). However, the ownership of business remains with the franchisor. Brands can take this risk only in big markets where high ROI is expected. The contract of such franchises is renewed or extended solely if the outlet manages to meet the set requirements.
FICO – Franchise Invested Company Operated
Although this franchise model sounds a lot like the FOCO model, both have their own identity. With this model, the franchisee is not expected to get involved with business operations. Another evident feature of this model is that it can include multiple franchise investors who are paid a fixed amount. Such investors can help you run a single unit as well as a supply chain.
MF – Master Franchise
An MF is a mini-franchisor for a particular territory. An MF identifies and sells the franchises to smaller franchisees in a specific territory. It also helps with hiring, training, and operations. In return, they receive commission or compensation. A franchise needs to acquire the right licenses to achieve the Master Franchise status. Although it might seem too much work and money for a franchise business, the end results can be quite satisfying.
MFA – Master Franchise Agreement
The MFA gives the franchisee the right to sell or open more franchises in a large geographical area. It can be seen as the way of owning the rights to develop a franchise system within a territory. With the help of MFA, the master franchise gains permission to establish a significant business operation within a relatively short period with a concept that has already been developed by the franchisor.
IFA – Indian Franchise Association
IFA represents the Indian Franchise Sector by means of being a premier, non-political, and non-profit body. Owing to the efforts of IFA, there is now enhanced efficiency and expanding business opportunities in the Indian franchise sector. IFA also creates forums for discussion of issues and problems in the industry, brings in foreign franchisors, and encourages the banks to fund more franchisees.
Franchisee satisfaction Index (FSI)
FSI is a survey-based tool that is used to measure the satisfaction among present franchises in regards to the franchise system. It is a comprehensive rating survey to rate the franchisor in terms of system, marketing, training, etc. Overall, it helps evaluate the performance of the franchisor, and the data can be used by prospective franchises before buying it.
It’s common to get confused when you enter a new industry but could lead to severe losses if you do not understand the basic concepts well. By understanding these acronyms and their importance in the industry, you can gain insight into the world of franchising and keep yourself from getting fooled when it’s your time to become a franchisee. To know more about how the Franchise Business in India works, drop us a query right here.