The franchise glossary

32 terms, defined in plain words with the direct answer first — the FDD items, the fees, the structures, and the vocabulary of the buying process. Where a term carries real data in our dataset, the definition shows the computed figure, dated.

Absentee ownership / semi-absentee: Absentee ownership means owning a franchise unit without working in it — a hired manager runs daily operations.
Ad fund fee (marketing fund): An ad fund fee — also called a brand fund or marketing fee — is a recurring payment, commonly 1–4% of gross sales, pooled across franchisees to fund marketing the franchisor controls.
Area developer: An area developer buys the right to open multiple units in a defined region on a schedule — say, five units in five years — usually at a discounted per-unit fee paid partly upfront.
Authorized representative: An authorized representative is a person or firm a franchise brand has itself authorized to respond to buyer requests about its franchise — usually the franchisor's own development team or a consultant the brand appointed.
Business opportunity: A business opportunity is a packaged offer to start a business — often vending machines, ATMs, or product routes — sold under the FTC's separate Business Opportunity Rule, not the Franchise Rule.
Conversion franchise: A conversion franchise is an existing independent business that joins a franchise system — a local plumber rebranding under a national name.
Discovery day: Discovery day is the franchisor-hosted visit near the end of the sales process — a day at headquarters to meet the leadership team, tour operations, and be evaluated as much as to evaluate.
Earnings claim: An earnings claim — formally a financial performance representation — is any statement about how much a franchise's units make or could make.
Franchise broker / consultant: A franchise broker — often self-titled "franchise consultant" or "coach" — matches buyers to brands and is paid a commission by the franchisor when you buy, commonly a five-figure share of your franchise fee.
Franchise Disclosure Document (FDD): The Franchise Disclosure Document (FDD) is the legal disclosure every US franchisor must give a prospective buyer at least 14 days before any signing or payment.
Franchise fee: A franchise fee is the one-time, upfront payment a franchisee makes to the franchisor for the right to open under its brand — the entry ticket, disclosed in Item 5 of the FDD.
Franchise registration states: Franchise registration states require franchisors to register their FDD with a state regulator — and renew, usually annually — before offering franchises to residents.
Franchisee: A franchisee is the independent owner who licenses a franchisor's brand and operating system to run a unit.
Franchisor: The franchisor is the company that owns the brand and the operating system and licenses both to independent operators.
FTC Franchise Rule: The FTC Franchise Rule (16 CFR Part 436) is the federal regulation governing franchise sales in the United States.
Item 19 (financial performance representation): Item 19 is the FDD's financial performance representation — the only place a franchisor may lawfully present earnings information about its units.
Item 20 (unit history): Item 20 is the FDD's unit-history section: tables showing, for the past three years, how many outlets opened, closed, transferred, were terminated, or were reacquired, state by state — plus lists of current and former franchisees with contact information.
Item 7 (initial investment): Item 7 is the initial-investment table of the Franchise Disclosure Document.
License (vs. franchise): A license grants the right to use something — a trademark, a product, or a technology — usually for a fee, without the ongoing control and support that define a franchise.
Liquid capital requirement: Liquid capital is cash and near-cash you can deploy quickly — savings and marketable securities, as distinct from home equity or retirement accounts.
Master franchise: A master franchise is a two-level arrangement: the master franchisee buys the rights to a large region and may sub-license units to other franchisees within it, acting as a mini-franchisor — recruiting, training, and sharing in royalties.
Multi-unit operator: A multi-unit operator is a franchisee who owns more than one unit — the direction most franchise economics push, because overhead and a management layer spread across locations.
Net worth requirement: A net worth requirement is the minimum total wealth — assets minus liabilities — a franchisor requires before awarding a franchise.
Renewal term: Renewal is the right to continue after a franchise agreement's initial term ends — but rarely on your original terms.
ROBS (Rollovers as Business Startups): ROBS — Rollovers as Business Startups — is a financing structure that moves retirement funds into a new business without the early-withdrawal penalty: you form a C corporation, create a company 401(k) plan, roll your retirement savings into it, and the plan buys stock in the corporation.
Royalty fee: A royalty fee is the ongoing payment a franchisee makes to the franchisor — usually a percentage of gross sales, paid weekly or monthly, for the life of the agreement.
SBA franchise eligibility: SBA franchise eligibility means a brand can be financed with a US Small Business Administration-guaranteed loan, most commonly through the 7(a) program.
Territory (protected / exclusive): A territory is the geographic area a franchise agreement assigns to a unit — defined by radius, ZIP codes, population count, or, in trades like senior care, population over 65.
Transfer: A transfer is the sale of an existing franchise unit to a new owner.
Turnkey: Turnkey describes a franchise offering in which the franchisor delivers a ready-to-operate unit — site found, build-out finished, equipment installed — so the buyer "turns the key" and opens.
Unit retention: Unit retention measures how many of a franchise system's units stay open over a period — the inverse of churn, and the health indicator marketing can't spin.
Validation (franchisee validation calls): Validation is the due-diligence step of calling a system's franchisees — current and former — to test what the sales process told you.

Looking for these?

Franchise agreement — covered in depth by our franchise agreement guide.
What a franchise is, legally and practically — the full pillar guide.