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Franchise Agreements, Cash Flow and Royalty Payments
By Lance Winslow
One of the biggest concerns in franchising for a franchise
company is cash flow. And that means a franchisor must
pay careful consideration to royalty payments from its
franchises and franchise outlets. Not only is it important
to receive the money, but it also is smart to make sure
that the money is due, when the franchisee can pay it and
when the franchising company will need it. If a franchisor
collects its royalties at the end of the month, when rent
is due then the franchisee may have to choose between rent
or royalties.
In carefully considering the cash flow we needed for our
franchising company and the ability of our franchises to
pay the fees owed, we modified our franchise agreements
to best fit solving this issue for all parties concerned.
Below you will find a copy of the clause that I inserted
into each and every franchise agreement;
2.2 Continuing Fees
2.2.1 Royalties
The royalties for each truck/unit will be $100.00 per
month. This royalty fee is due and payable in full on the
seventeenth (17th) calendar day of each calendar month.
These royalty payments are to be paid for every truck and
trailer unit Franchisee operates. Payments of continuing
royalty fees are not refundable and must be made via bank
wire or such other electronic funds transfer procedure
as Franchisor may require.
The royalty fee may not be uniform for all franchises
now being offered by the franchisor. Franchisor reserves
the right to trade services for royalties upon our mutual
consent. Franchisor reserves the right to administer National
and International accounts and collect all monies. Franchisor
may subtract out the royalty fees and/or the promotional
fund fees that Franchisee pays Franchisor before forwarding
any monies due the Franchisee. Payments to the Franchisee
will be settled monthly.
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As they say; cash is king. Every franchising company needs
cash to accelerate faster and faster into the market as
they extend their brand-name and grow their companies.
And it is not easy to manage a rocketship. All franchisors
would be well advised to consult with a CPA and an experienced
franchising attorney to best strategize how to accomplish
this goal. I hope you will consider this in 2006.
"Lance Winslow" - Online Think Tank forum board.
If you have innovative thoughts and unique perspectives,
come think with Lance; http://www.WorldThinkTank.net/wttbbs/
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