Are you interested in buying a franchise? Know the basics before investing

buying a franchise, start your business withB.E.T

Get a deep understanding of what this business model is and how it operates with this handy glossary.

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process. This article was updated on October 15, 2021

Are you interested in the world of franchises ? We give you the terms that you should know about this sector and business model in Mexico.

-Pre-opening activities. They are the first steps that must be taken before opening a franchise. They include various procedures by the franchisee, for example health, legal, land use permits, etc. They also contemplate the remodeling or acquisition of the premises, purchase of inventories, hiring of telephone lines and insurance, recruitment of the initial staff and their training.

-Arbitration. System increasingly used in franchise contracts. Resolves disputes and controversies between a franchisor and a franchisee through an arbitral tribunal, following the agreed procedure and applying the law agreed in the franchise contract.

-Field counseling. Visits that help the network in general to reinforce the practices and / or procedures necessary for the correct operation of the units. Far from supervising the franchisee’s operation, the so-called “supervision visits” should guide it towards best practices.

-Continuous technical assistance. It is the core of a successful franchise system, as it regulates the operation and expectations of the business. It is a specialized care that the franchisor gives, in exchange for royalties, to support the franchisee in everything necessary so that he or she operates the unit correctly.

-Technical assistance in the opening. It is the advice that is provided to clients from the signing of the franchise contract. Normally, it covers a few days after the opening of the business.

-Mexican Franchise Association (AMF). It is the association that groups together various brands, suppliers and consultants related to the franchise sector in Mexico. It started activities in 1989 with six members. The AMF disseminates and defends the culture of franchises in the country, contributing with the organization of talks, courses, workshops and franchise fairs, so that the commercial figure is recognized as one of the safest business models in Mexico and abroad .

-Comercial advise. It is known as a slogan and they are phrases or sentences that are intended to announce to the public products, services, establishments or businesses (commercial, industrial or service), to distinguish them from the competition. The exclusive right to use a commercial notice is obtained by registering it.

-Training. Techniques used by the franchisor so that both the franchisees and their staff acquire the necessary knowledge to operate the franchise. It can be divided into: training provided before opening – which instructs on the operation of the unit – and periodic training – where the franchisee and his collaborators acquire greater knowledge about the day-to-day running of the franchise. These courses are the responsibility of the franchisor or an external trainer.

 Check list. Established formats that serve as support to those who provide field advice and where general concepts such as unit cleaning, customer service, product knowledge, administrative processes and environment are periodically evaluated, among other important issues.

-Circular Franchise Offer. Also known as COF, it is the document that contains the information that the franchisor must deliver to its potential franchisees at least 30 business days before signing the franchise agreement.

-Commercialization of franchises. It is the appropriate term to describe the granting of units to a franchisee. Sometimes the term “sale” is used erroneously, however, in article 142 of the Industrial Property Law it is defined that, in order for a franchise to exist, the franchisor “grants” the franchisee the right to use the trademark and technology. That is, a franchise is granted, not sold.

-Franchise agreement. Agreement of wills signed between the franchisor and the franchisee, in order for the former to grant the latter a franchise. In it, the rights and obligations of both parties are contemplated.

-Initial fee . In English it is known as a franchise fee. It is the consideration that the franchisee pays to the franchisor for having the right and enjoyment of the use of the brand, as well as receiving the knowledge, technical assistance and experience in the business.

-Advertising fees. They are the amounts that are contributed for the brand’s advertising campaigns. They are normally divided into: local advertising, which is the amount dedicated only to promoting the franchisee’s unit in your area; and institutional advertising, which encompasses advertising campaigns together and for the benefit of the entire network.

-Standardization. It is the creation of operational schemes and technological controls within the organization, which must necessarily be implemented to achieve uniformity in operations.

-Franchise. It is a business format aimed at the commercialization of goods and services, according to which a natural or legal person (franchisor) grants another (franchisee) – for a specified time – the right to use a trademark, transmitting the necessary technical knowledge that allow you to market these goods and services with uniform business and administrative methods.

-Legal definition (article 142 of the Industrial Property Law). A franchise will exist when, with the license to use a trademark, granted in writing, technical knowledge is transmitted or technical assistance is provided so that the person to whom it is granted can produce or sell goods or provide services in a uniform manner and with the methods operational, commercial and administrative established by the owner of the brand, aimed at maintaining the quality, prestige and image of the products or services that it distinguishes.

-Low Investment Franchise. They are those whose franchise fee added to the initial investment does not exceed $ 300,000.

-Franchise with Social Impact (FcIS). Social project whose methodology and operating tools are institutionalized and replicated in any region or country with similar social or environmental problems. Unlike commercial franchises whose purpose is to maximize commercial expansion through investors, the FcIS aim to share the scheme of a successful project to add ideas and facilitate joint work, generating profits that impact and benefit the development of various social groups . Mainly, they are divided into three types: social franchises, franchises with a social sense and social microfranchises.

-Franchise corner. Establishment of a franchised unit within another business establishment.

-Area franchise. When the franchisor grants the franchisee exclusivity in the operation of several units located in a specific geographic area. Two alternatives can be given:

1. The franchisee operates all units in the area.

2. The franchisee grants sub-franchises.

-Conversion franchise. It is the granting of unitary franchises to entrepreneurs who operate establishments of the same line of the franchise. In this way, they become franchisees of a network or franchise system. Conversion franchisees sign a contract identical to that of the franchise contracts that make up the entire network.

-Conversion franchise. This figure occurs when the units that belong to the franchisor (own units) are granted to the franchisee, thus becoming a franchised unit.

-Master franchise. The franchisor grants the franchisee an exclusivity made up of one or more countries, and normally imposes on the franchisee the obligation to develop the territory in a certain time, giving rise to what is known as a development contract. The franchisee may open all units by himself or sub-franchise.

-Unitary franchise. This scheme is the most traditional. Franchisor and franchisee assume rights and obligations for the operation of a unit that is part of a network or franchise system.

-Franchisor. It is the natural or legal person, owner of the rights to exploit a brand and possessor of marketing and / or production know-how. Contractually, it grants the franchisee a license to use the brand of which it is the owner, transmitting the corresponding know-how at the same time.

-Franchisee. It is the natural or legal person who contractually acquires the right to exploit a franchise from the franchisor. The contract includes the use of a brand and the operation of a business in accordance with the knowledge transmitted to it.

-Mexican Institute of Industrial Property (IMPI). Decentralized public body with legal personality and its own assets, and with the legal authority to administer the industrial property system in Mexico.

The IMPI is in charge of registering the trademarks in the name of an owner, who will have the exclusive right to use it. The validity of the registrations of a trademark or a commercial notice, as well as its publication in the Industrial Property Gazette, of a commercial name is 10 years from the date the application was filed. Trademarks, notices and trade names can be renewed for equal periods indefinitely. Franchise contracts must be registered with the IMPI so that they can take effect against third parties.

-Know how. It is the transfer of technology and experiences by the franchisor to the franchisees to establish the standardization of their franchises.

-Manuals. It is the information contained in tangible or intangible media. They are the documents in which all the operational and administrative information of the units is integrated, in order to achieve the standardization of operations, processes, procedures, image and service. The manuals may vary in terms of the needs of the different franchise systems.

-Mark. It is the sign that distinguishes a product or service from others of the same kind. To have exclusive rights or use a trademark, it is required to be registered with the Mexican Institute of Industrial Property (IMPI).

-Legal framework. Set of legal provisions contained in the legislation and that regulate the operation of franchises.

-Mediation. Procedure prior to a trial or arbitration where a third party (mediator) seeks to resolve a dispute between franchisor and franchisee.

-Profile of the franchisee. It is the set of characteristics that the investor must cover, which must be congruent with the philosophy and work culture that each of the franchisors in their business seeks. It includes aspects such as age, sex, studies, socioeconomic level, availability, market knowledge and previous experience, among others.

-Regaly . It is the periodic consideration that the franchisee gives to the franchisor for the use of the brand, as well as the knowledge and technical assistance received.

-Registration of the contract. Obligation of the franchisor and the franchisee to register, before the Mexican Institute of Industrial Property (IMPI), the franchise contract they have signed. The lack of registration prevents the contract from taking effect against third parties.

-Territory. It is the exclusive geographic area within which the franchisee will operate the unit. Location is an essential part of developing a successful franchise system. Each business is different and, therefore, needs a diversity of territories, because what works for one does not mean that it is effective for everyone else. Before limiting a territory for your system, consider the following points.

* Target market

* Population size

* Age and sex of the inhabitants

* Economically active population

* Number of schools and universities

* Availability of resources

* Ways of communication

* Government entities

* Main industry and commerce in the area

* Customers of the business already existing in the area

* Consumption habits

* Socioeconomic levels

The territories are delimited by kilometers, cities, states, regions, streets around or by travel time. All this depending on the characteristics of each turn.

-Trade dress. It can literally be translated as “commercial dress.” It constitutes the image of an establishment, made up of the combination of colors, distinctive signs, operating and commercial methods.

-Tropicalization. Adaptation of the franchise to the cultural needs of consumers in each region.

-Franchised units. It is the number of businesses or points of sale that the franchise system has.

© YVR Consulting Pty Ltd 2024