Royalty lump sum. Royalty waiver method. Lump sum and royalties

01Jan

Hello! In this article we will talk about lump sum payment.

Today you will learn:

1. What means lump sum.
2. How is the lump sum payment calculated?
3. Are there franchises without a lump sum fee?

What is a lump sum payment

Business is a very risky business. Official statistics say: about 80% of opened companies last no more than 1 year, 10% - no longer than 3 years, 5% - 5 years. And only the remaining 5% remain in business for a long time. These statistics don't take into account startup sales, business closures due to loss of interest, and other pitfalls, but they tell the main thing: there are no guarantees that your own business won't close in the next few months.

That is why it is widespread. It allows you to reduce risks and gain access to the experience of a company that has been in business for decades. That is, you will receive a ready-made recipe for how to conduct business, but you will have to pay for it. One of the cost items for a franchise is lump sum .

Lump sum payment - a fixed fee paid by the buyer for the right to use trademark.

In simple terms, such a fee is the cost of purchasing a trademark and all the business knowledge that the company can offer.

Why is a lump sum fee paid?

The lump sum fee consists of several items at once: the sale of a trademark and advice on doing business. Large franchisors, for example, McDonald's, not only give advice on how to properly locate a restaurant and what to sell there, but also completely supervise the process.

All of these companies allow you to do business without a lump sum fee and even without royalties: simply due to the fact that you will purchase goods and sell them in your store.

However, you should not contact such companies, because they are not interested in you selling their product, but in buying it.

There are also royalty-free franchises. A striking example is the store. The amount of the lump sum contribution is 750,000-1,000,000 rubles. There are no royalties, but you are not the owner of the business, but the general manager of the store: you are responsible for the work, and you are paid 13-17% of the net profit that your store has.

As you can see, royalty-free franchises do not provide you with exactly the same conditions that are usual in such a business. You do not become a partner subject to the requirements of the head office, but conduct business independently. More often than not, you will become the managing manager of the company, who is paid something similar to a “royalty.” Roughly speaking, you yourself act as an investor who invests money and receives a certain percentage from it.

Trading is becoming an increasingly popular way of running your own business.

Production requires many conditions and qualified personnel, and opening own store the requirements are an order of magnitude less.

The basis for success is the ability to work in your niche and compete in the market.

Franchise operating principle

To get started, you are offered a product, promotional materials and booklets, as well as instructions for working with clients in sales. That is, all that remains is to sell the proposed product on the market.

The only contribution required is the purchase of products for the sale of the first batch of goods. In this business there is no need for additional expenses, since there is no need for an office, equipment or additional staff.

Franchise from the manufacturer

No lump sum fee, that is, distribution work. In this option, a person enters into a contract with the manufacturer of goods agreement on the representation of its products in a certain region.

The entrepreneur receives discounts on products, as well as retail store equipment brand. In this case, the manufacturer expands the sales market, and the businessman gets the opportunity to start working with the products of someone else’s brand at minimal cost.

Conditional type franchise

This type involves starting a business without a high lump sum fee and additional investments.

Here businessman receives training in the company, and is then provided with knowledge of business processes.

At the beginning of a person's work mentor provided, who advises on emerging issues.

All activities are carried out by the entrepreneur himself. He also decides the issue of the amount starting capital for your business.

Royalty waiver method

The royalty exemption method is used to value patents and various licenses.

Typically, the owner gives other people the opportunity to use the license for a financial reward (royalty), which usually varies from revenue for use and ranges from 7% .

If the patent owner sells the license for the first time, then the royalty amount established by the appraiser.

The appraiser, based on market analysis and demand, conducts research and determines the percentage rate of deductions.

Video: Collecting royalties from franchisees

It explains what points must be specified in the contract in order to freely collect the debt from the defaulter, and how in practice the trial of a claim against the debtor occurs.

When we talk about lump sum payments and related financial terms, we usually mean deductible payments. In a broader sense, this refers to payments that are associated with the grant of a license.

Lump sum payment and royalty when paying for a franchise

First, let's look at what the franchise is. In business, a situation is quite common when a certain company has already achieved some success and promoted its brand.

And in the future he prefers to develop by selling the right to other businessmen to work under their brand, with their material and methodological support in exchange for certain payments.

Typically, they come in two main types:

1. One-time payment
2. Regular payments.

The first payment is just a lump sum payment. Its amount actually includes all the costs that are necessary to start your business under the provided trademark.

However, in practice, the amount usually paid is slightly less. This is due to the fact that, in fact, a certain amount of lending occurs to the newly created business.

Now let's talk in more detail about regular payments. In this situation they are called royalties. This name comes from the fact that they were once called "payments to the king."

In essence, we are talking about payments to the one who provided the franchise and in fact they constitute his income.

To form them, three main approaches are usually used:

1. A percentage of the profit is paid
2. Instead, a percentage of the trade markup is taken.
3. The fixed amount specified in the contract is paid.

Each of these methods of forming royalties has its own reasonable grounds.

• In the first of the cases under consideration, the division of profits looks quite justified, because the franchisor provides versatile and significant assistance for the business activities of the franchisee (the one who purchased the franchise to run his business).
• In the second of the cases considered, we are talking about dividing the amount of trade markups. This method is considered more accurate, but, in fact, it is convenient to use when there is an accurate accounting of such allowances.
• The third case is the simplest, but you need to approach the formation very carefully. After all, if it is overestimated, the franchisee’s business may become unviable, and if it is underestimated, the franchisor will not receive the profit he earned.

The essence of lump sum and royalty

When considering financial relations when granting a franchise, we determined what place a lump sum payment occupies in this system. Now let us turn our attention to its economic meaning, to its essence.

When a businessman wants to get a franchise from a well-known brand, he expects that he will sell a branded product that is well known in the market and will receive a corresponding profit.

However, to achieve such a goal, much needs to be done. This includes:

1. The right to operate under the franchisor's trademark.
2. Supply of branded goods for sale.
3. Organization of activities based on the instructions of the franchisor.
4. Various methodological assistance.
5. Possible assistance in increasing your customer base.

All of the above required a lot of work from the franchisor and financial investments. On the other hand, a franchisee is usually a small business. Often he does not have enough experience and knowledge.

It is also clear that financial and various types of material resources He doesn't have enough yet either. By purchasing a franchise, he not only gets a good chance for a successful business.

In fact, he is following the broad road trodden by someone else to success in business. The chances of successful development increase many times over. However, as you know, you have to pay for everything.

The economic meaning of a lump sum payment is that this is a payment for joining a business with the help and under the franchisor’s brand. To put it a little differently, this is a fee for joining an already existing franchise network.

The other part of the payments (royalties) are payments that have a slightly different economic meaning. Here we are talking about the fact that the business works and makes a profit, deducting part of it to the one who supported the franchisee.

In addition, we should not forget that this amount includes payment for the services provided and the right to use the corresponding brand.

It is worth noting: all types of payment that are associated with the economic relations of franchising are determined in the text of the concession agreement they conclude.

Let's ask ourselves the question of how specifically it is customary to determine the amount of a lump sum contribution? Are there any standard recommendations for how to deal with such a situation? This is actually a difficult question.

After all, here you need to evaluate several rather complex factors. For example, we are talking about how the trademark provided to the franchisee affects his profit? What is the reasonable expected profit?

What is the cost of various types of services and any support that comes from the franchisor? All these questions are very complex. For this reason, there are no generally accepted recommendations of this kind.

In each specific situation, for each franchise system, different principles for concluding such agreements may be applied. Another difficult issue is the exact determination of the franchisee’s profit.

There are several possible answers to this question. When concluding the relevant agreement, it is important to be as specific as possible about what specific definition is being discussed.

Other uses of the term

The meaning of the term “lump-sum” discussed above - we are talking about a lump-sum fee - is applicable to the economic relations of a franchise, and in a broader sense - to relations associated with the use of a license.

But this term also has completely different meanings. Let's talk about them in more detail. Let's talk about what is meant when they talk about a lump sum.

This term can be used in two different senses. The general connotation of the meaning is that we are talking about certain amounts that are not broken down into components.

• Lump sum contract amount- this total amount payment under this agreement, which is not broken down into components. In the second sense, we are talking about the amount of taxes paid without specific indications of which specific taxes are considered as part of this amount.
• Another term used is “lump sum price”. In this case, we are talking about the cost of a unit of a batch of goods on average. That is, it is artificially presented that all units of goods in a particular batch are the same and, accordingly, have the same price (even if this is not the case). That is, the conditional price of a unit of goods of this kind is called lump-sum.
• There is a separate concept of a lump-sum fee or lump-sum tax. Its characteristic feature is that its amount does not depend at all on financial results business. This value is simply directly stipulated in the concluded agreement and does not depend in any way on any specific features of the transaction.
• There is another use of this term. We are talking about a lump sum stamp. This term is used in postal activities. In some cases, a company or institution may perform a large number of postal items.

In this case, it is convenient for both the company and the post office to pay in bulk, in a large amount at once. This is usually done through prepayment. At the same time, on postal items this stamp is placed.

What does the lump sum fee consist of?

Although there are no single and universal rules for its formation due to the huge variety of specific situations, it is still possible to indicate the standard components of this amount.

• One of the parts, of course, is the fee for the right to use the trademark provided. But there are also other components here.
• Typically, franchisors help not only recruit, but also train staff. These services, of course, are not free.
• Various branding attributes are also usually provided. This could be a uniform for staff, printing, various commercial equipment or branded printing products. By receiving this help, the franchisee saves himself from certain expenses, actually transferring them to the franchisor.
• Providing these and other similar services the franchisor can also be integral part lump sum payment.

Principles for calculating lump sum payments

Note, that payments in connection with franchising consist of two parts, a one-time payment (lump sum) and regular payments (royalties).

Sum of all payments— this is the final price for providing a franchise and related assistance. This price can be broken down into these two parts in various ways.

It must be remembered that you first need to assess the feasibility of the proposed price for the franchise. This is most conveniently done by analyzing similar types of businesses.

The amount of the lump sum contribution is usually determined based on the following factors:

1. The amount usually ranges from 5 to 25 percent of the total payment.
2. If the amount is disproportionately large, it exposes the franchisee to additional risk.
3. When making payments, inflation processes in the economy must be taken into account.
4. The franchisor seeks to obtain such an amount that, when deposited in the bank at interest, it will generate income equal to royalty payments.
5. The franchisee strives to act in such a way that the loan rate (equal in size to the lump sum fee) is equal in amount to the royalty paid.

Stanislav Matveev

Author of the bestselling book "Phenomenal Memory". Record holder of the Book of Records of Russia. Creator of the training center "Remember Everything". Owner of Internet portals in legal, business and fishing topics. Former owner of a franchise and online store.

IN last years All large quantity Russian citizens are considered in various ways in the hope of improving their financial situation. Some of them become individual entrepreneurs and develop business in the industrial or commercial spheres (also considered as an option for the main or additional income). Other citizens who have savings and a main job prefer to make private investments in various financial projects. The ideal option is one that allows novice entrepreneurs to run their business under an already well-known brand.

Royalty - what is it?

Royalty is a financial reward paid by a business entity to the franchisor (franchise owner) not only for information support and Maintenance business, but also for staff training and promotions.

Currently, many entrepreneurs are seeking to purchase franchises of companies that have been on the Russian market for quite some time and have been able to gain a good reputation among end consumers. The most popular and sought-after offers are:

• franchise;
• McDonald's franchise;
• franchise;
• pharmacy franchise 36.6;
• franchise, etc.

After concluding a licensing agreement with the franchisor, the businessman acquires the right to conduct business under his trademark. At the same time, he is obliged to regularly transfer money to him for this. Such payments can be made:

• once a month;
• once a quarter;
• once a year.

Advice: Business entities should not confuse concepts such as royalty and lump-sum payment, since their amounts and purposes differ significantly from each other.

The royalty amount is determined individually, as its size may be affected by the following factors:

1. Brand fame.
2. Expected profit.
3. Business income.
4. Features of the franchise.
5. Personal agreements of the parties.

Advice: in some cases, the royalty amount is fixed, which is reflected in the relevant documents. Sometimes the parties agree that a certain percentage of the profits will be transferred as royalties.

As practice shows, in the territory Russian Federation The royalty rate ranges from 3% to 6% of gross income (sales for a certain reporting period). There are currently 3 options for calculating royalties:

Lump sum payment - what is it?

If a businessman decides to operate a franchise, he must enter into a commercial concession agreement with the franchisor. When acquiring the right to conduct business under a well-promoted trademark, he will have to pay a lump sum fee - a one-time payment. After making this entry fee, the businessman begins active interaction with the franchisor.

Advice: Business entities should remember that the lump-sum contribution is not the only payment that will have to be made to start working on a franchise. They will have to purchase equipment, pay for staff training, purchase goods, regularly pay rent and royalties.

The lump sum payment is paid in full immediately after signing the contract. Some franchisors allow business entities to pay the entry fee in installments and develop for them individual schedules. Currently, Federal legislation does not regulate in any way the procedure and system for calculating lump-sum contributions. That is why franchisors independently determine the amount of entrance fees, based on business conditions and economic benefits.

Today on the domestic market you can find franchises for which mandatory lump-sum fees are not established. In this way, well-known companies are trying to attract new business entities to their business line. After concluding agreements between franchisors and legal entities(including individual entrepreneurs) they have dealer relationships. For example, a franchisor produces products, and the company that bought his franchise sells it under a well-promoted brand.

This type of relationship is very beneficial for beginning entrepreneurs, since they do not need to make large initial investments to promote their business. Currently, many clothing stores operate successfully under such conditions.

When forming a lump sum fee, franchisors take into account various factors:

1. If the franchisor is a well-known foreign company that allows business entities to develop business internationally, it may set a lump sum payment in US dollars or euros.
2. If the franchisor is interested in the active development of his network, he may require a symbolic payment from the entrepreneur as an entry fee.
3. If the franchisor seeks to take a leading position in the domestic market and squeeze out competitive companies, he may completely abandon lump-sum payments. In such cases, business entities undertake to regularly purchase goods from him, the cost of which may include a lump sum contribution.

Save the article in 2 clicks:

Every businessman who wants to enter the Russian market under a well-promoted brand can purchase a franchise that will allow him to use for his own purposes various technologies, standards and products. For the right to use someone else’s and well-recognized trademark, you will have to pay a lump-sum fee, as well as regularly pay royalties, the amount of which is determined on an individual basis. Working as a franchise commercial organizations And individual entrepreneurs get a lot of benefits. They are also protected from many mistakes that are usually made when exploring new business areas. the main task Any entrepreneur who decides to purchase a franchise is to find a well-known franchisor in the chosen niche and strictly adhere to the recommendations received and the terms of the contract. In this case, he will be able to achieve his goals, form his own client base and receive gradually increasing income.

In contact with

In the modern world there are many ways to start your own business. One of the simplest is franchising. In simple language, the concept can be interpreted as follows: someone has a unique product or technology, a trademark - that is, a certain earning scheme. Such a businessman acts as a franchisor, that is, a franchise seller. The purchaser of a franchise is called a franchisee. This person or enterprise, for a fee, receives the rights to use the technology or product. To put it simply, franchising is the rental of a trademark or a certain technology or business scheme.

The franchisor is remunerated in the form of a lump sum fee and royalties.

Term - lump sum

What is this - a lump sum payment? Anyone who has encountered franchising understands: these words mean a fixed payment that is paid to the franchisor by the buyer of the franchise. But the phrase has many meanings, and there is no such concept in Russian legislation. And all relations in this area are regulated by the civil code and articles on commercial concessions.

A lump sum premium appears in the lexicon of insurers and means an amount that will never be paid upon the occurrence of an insured event.

What is a lump sum franchise fee? This is a fixed amount that is paid by the franchisee when concluding a concession agreement with the franchisor.

Concession agreement

In legislation, a concession agreement means that the franchisor, the owner of a trademark or a certain method of doing business, transfers to the franchisee, the buyer of this technology, the right to use it for a fee, which is called a royalty. In fact, there is a lease of an object of intellectual property or an invention, a utility model - that is, something unique.

A commercial concession agreement can be easily compared with a license agreement. Only the first version of the transaction describes in great detail the conditions for using the object of the agreement, how it will be carried out entrepreneurial activity franchisee so that the franchisor's reputation does not suffer as a result of the latter's actions.

Peculiarities

Due to the variety of forms of intellectual property, the contract provides for many nuances:

• restriction of territorial action, and therefore the place of business;
• urgent or indefinite;
• franchisees may be subject to requirements that limit their ability to compete with the franchisor;
• limiting the scope of franchise use;
• Franchisees may be prohibited from using similar franchises acquired from other persons.

In addition, a commercial concession agreement may provide for various methods of calculating and making royalty payments, for example:

• fixed payments;
• monthly;
• disposable;
• percentage of revenue;
• markup on goods, which will be paid to the franchisor.

Registration of the agreement

The most interesting thing is that this type of transaction is subject to state registration. If the franchisor is a foreign person, then this operation is carried out by the body that registers such enterprises or individual entrepreneurs on the territory of our country.

In cases where the subject of the contract is an object that is protected by patent law, the contract must be registered with the body involved in regulating relations in the field of patent law.

Partial registration of the agreement may be carried out. This means that if a document contains a requirement for non-disclosure of know-how, then this part of the contract is subject to registration.

If the requirements of these rules are not met, the contract is considered void, that is, having no legal force.

Royalty and lump sum

The most sensitive issue when concluding a concession agreement is payments, which are of two types:

• lump sum fee;
• royalty

What is this - a lump sum payment? This is the franchise price, the amount of which is determined by the contract and is paid only once. In fact, the payment is a payment for the acquisition of a certain technology or trademark, a kind of entrance fee.

Royalties are regular payments. For example, for branding a catering outlet, a franchisee can pay monthly or quarterly 5% of the turnover of the entire establishment.

In this case, royalties are not only payments, but also additional protection for the franchise buyer. The franchisor is directly interested in the profitability of the establishment, because the amount of monthly cash transfers received depends on this.

Accounting entries

It is very important for both parties to the contract to understand how to correctly display expenses and income in accounting, including the lump sum. Postings and the rules for displaying them are specified in the provisions of PBU 14/2007.

If for the franchisor the sale of a franchise is the main activity, then all payments to the franchisee are shown as part of sales income. When this activity is not the main activity, the initial contribution is reflected in operating income.

The franchisor displays the lump sum payment received in entries 51/62, 76. Royalties - in entries 60, 76/51. If the initial payment is taken into account in deferred expenses, then it is displayed on account 97 and distributed in equal parts over the entire term of the contract.

Further relations between the franchisee and the franchisor are taken into account according to the standard “supplier-buyer” scheme.

Fixing payments in the contract

Almost any type of business transaction requires a correct description of the terms of payment. There must also be certain financial and other conditions that will apply in the event of failure to comply with the requirements of the contract. What it is? Lump sum and royalties, size and terms of payment, possible consequences if the terms of the contract are violated by any party, all this must be clearly stated. As a rule, payment of a lump sum fee is a condition for the franchisee to start operating. If he violates the agreement, then he does not have the right to carry out entrepreneurial activities under a commercial concession agreement.

Conditions for termination of the transaction and return of the original payment

Deciding to purchase a franchise is quite difficult. Despite the assurances heard from commercials and posters, this pleasure is not cheap.

What it is? The lump sum fee must be paid immediately upon conclusion of the contract. Royalties must be paid monthly; in addition, it is necessary to rent premises, purchase all related products and hire staff. Or it may happen that after a few months there will be no profit, or the franchisor is not too interested in the success of the franchisee. Therefore, it is very important to provide for the conditions for its termination at the stage of choosing a franchise and signing an agreement.

What conditions must be provided:

• termination due to expiration of the contract;
• failure to comply with the terms of one of the parties;
• at the initiative of one of the parties;
• if the brand being franchised is not registered in the established federal legislation ok;
• the basis for termination may be a court decision;
• financial insolvency of the franchisee or franchisor.

In order not to be left behind, it is necessary to stipulate in the contract what the lump-sum contribution to the franchise is and what it will cover. Eg:

• number of objects to open;
• what equipment will be supplied by the franchisor and in what time frame;
• the conditions for renting the premises, who will pay for it (possibly in equal parts or only the franchisee);
• how the acquired technologies will be used;
• at what stage and to what extent the franchisor provides assistance in “promoting” the outlet.

In fact, the agreement should cover all the intricacies of joint business activities.

Under no circumstances should there be verbal agreements. In a situation where there is no profit, it will not be possible to prove that the franchisor did not fulfill the oral agreements. Do not forget that the transaction must be registered. Otherwise, there can be no talk of any protection of franchisees and work in the legal field. It is very easy to cancel a transaction without registration, therefore, it is also easy to lose your investments. I would like to note that franchising and a lump sum fee for some unscrupulous franchise sellers is all they offer. In fact, purchasing a franchise involves a wide range of responsibilities for the franchisor, who must actually assist in the development of the buyer's business.

How to return the down payment?

You should be careful when the agreement is concluded on terms of a fixed royalty amount. As a rule, in such cases, the initial payment is quite high, and in the future the franchisor is not at all interested in the buyer of the brand. Therefore, the most difficult question to answer is how to return the lump sum payment when concluding such transactions. Most often this happens with already promoted trademarks, who earn more from lump sums than from royalties.

Franchisees are advised to be careful and negotiate the conditions for the return of the lump-sum fee at the stage of concluding the transaction. The condition for return may be gross violation of its obligations by the franchisor. Eg:

• the franchisor does not have rights to the trademark being sold;
• the seller does not deliver equipment within the agreed time frame or does not transfer business technology;
• does not provide consulting services stipulated in the contract, etc.

If the contract does not provide for the conditions for the return of the lump sum contribution, then this issue can be resolved in court.

Contract without down payment

Sometimes you can find offers - a franchise without a lump sum fee. Is this possible? In fact, it is possible, but this does not mean that the franchisee will not have any cost part when starting a business. All expenses for rent, correspondence, telephone conversations and hiring personnel are borne by the franchise buyer. Most likely, you will have to purchase finished products or equipment from the franchisor. That is, an agreement option without a lump sum fee is possible, but this does not mean at all that no investments will be required or that starting a business will be cheaper.

Conclusion

Lump sum payment - what is it in simple words? This is the acquisition of a certain business technology and/or trademark. But no precautions specified in the contract provide a complete guarantee that the business will go ahead, because entrepreneurial activity is, first of all, a risk that can be fully justified or lead to the loss of all invested funds.

home » How to earn » Royalty lump sum. Royalty waiver method. Lump sum and royalties