08 Sep, 2017

Franchise Royalties

It is quite normal to hear some clients say that they would have nothing to do with the payment of royalties. There are seven some business executives who do even factor the payment of royalties in their decisions to buy a franchise. For all those who are considering owning a franchise, it is very vital that you determine your priorities with regards to royalties. It would therefore be good for us to take a closer look at franchise royalties in detail. There are a number of people who are familiar with the initial costs when it comes to the ownership of franchise. Indeed there are costs like a franchise fee, equipment cost, training fee, working capital and even leaseholder improvement fees among others. But as the franchise operates, it is quite possible that a franchisee would be required to make payments for royalties which could even be more than the initial cots combined. This could be quite strange but more royalties means that you have just made more money. It is therefore important that you make your franchise royalties payments as and when they are due. The normal practice is that many companies would charge the royalties on your gross profit or earnings. This is the earnings before taking away any expenses even though there could be exceptions to this practice. What this means is that your royalty payments would be higher if your gross earnings are high. With a modest royalty agreement, it would acknowledge all of the parties in the agreement of the franchise system. Then there would be support from the franchisor with regards to marketing, staffing and other kinds of long terms support. However there could be some franchises that require just zero or no royalties at all In the long term, you would have to carefully evaluate your Franchise Disclosure Document and indeed all other contracts in order to determine the benefits and costs that are associated with the franchise royalties some other costs. For instance you have to check to see whether the future supply purchases or future equipment would be made through this franchise. This is because the mark-ups on these could set off the payments of the royalties. In fact the royalties would normally range between like 2 and 10%. However there are some of the franchises that have satisfied franchisees who would charge more while some would not.