What Royalties Are Owed to a Franchisor?

A Video FAQ with Mark A. Williams.

A franchisor is only owed the royalties that are set forth in your franchise agreement. Typically those royalties are going to be a percentage of sales (gross sales that you make). If you sell $100 and you owe a 5% franchise royalty, you are going to have to pay $5 back to that franchisor. That is before you pay any of your employees, before you purchase your products, so when you look at a royalty payment, it is really important to sit down and look at what all of your overhead and expenses are to see if you can still afford to operate after the royalty.

The franchise agreement might set out other types of royalties. There might be initial franchise fees, there might be royalties that are on a sliding scale based upon the amount of sales that you make or you might have different royalties if you use other franchisees in other jurisdictions to sell products and services. You really have to look at your franchise agreement and make sure you understand all the royalties or payments you will have to make to that franchisor in order to operate the business.

© 2014 Parsonage Vandenack Williams LLC

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