The Utility Company

Definition: The initial fee paid to a franchisor to join their system

What you need to know: Found in Item 5 of the FDD, this may be a flat fee, or may vary based on territory size, experience, or other factors.The franchise fee is an up-front (one-time) cost that a new franchisee pays to the franchisor. This fee is usually due at the signing of the franchise agreement and covers the right to use the franchisor's trademarks, name, and related business systems.

Definition: The minimum liquid capital you must have available in order to qualify to become a franchisee of this company.

Definition: An going fee paid to the franchisor on a regular basis to support advertising or marketing efforts.

What you need to know: This may also be called advertising fee, marketing fee, brand fund fee, and more, but the basic purpose is the same-- to support promotion of the brand systemwide. As with the royalty fee, it is detailed in Item 6 of the FDD, and can be a percentage of weekly or monthly gross sales or a weekly, monthly, or annual fee.

Definition: This business can be run by the owner on a part-time basis (less than 40 hours per week) and/or as a side business; it is not necessary for the business to be open/run full-time.

Definition: An exclusive territory is a fixed area in which you are given the right to operate and in which no other units of the same franchise may be opened.

What you need to know: Territory size may be based on factors such as radius, population size, zip codes, and more. Details can be found in Item 12 of the FDD.