What is a lump sum contribution in a franchise? The principle of working under a franchise. Video: Collecting royalties from franchisees

According to statistics, most new companies rarely survive beyond two years - for many reasons, the business has to be curtailed. And those who follow the beaten path and buy the right to use famous brand, have every chance of long-term prospects. A franchise has many advantages over an independent business. However, it is quite expensive. What are royalties in a franchise?

Definition

Royalty is a foreign word, literally translated as “the king’s share”, which previously meant a tax paid in favor of the monarch.

In modern vocabulary, royalty means monetary compensation for the right to use intellectual property, rent, license fees.

Types of payments

What is royalty and lump sum in franchising, or rather, how do they differ? The franchisee – the newly made partner – must pay for the right to hang a sign with a well-known name above his outlet. How - this is decided by the brand owner. Usually we're talking about about several types of payments.

One-time payment

What is a lump sum franchise fee? When purchasing a package, a new partner receives not only the right to use the company name, but also many other products - a developed marketing campaign plan, advertising products, instructions for managing the company, detailed descriptions and standards. For all these benefits, he pays a lump sum fee - a one-time payment that determines the cost of the franchise.

Experts say that this business is profitable, because every brand owner is interested in the prosperity of their enterprises. Therefore, the package of documents is prepared so carefully that partners have no choice but to follow the instructions to achieve success.

So the lump-sum franchise fee is a rather impressive amount that must be paid immediately after signing the agreement. Since it must cover all costs of creating and maintaining a ready-made business, its size is determined by the franchise owner.

Monthly payments

As a rule, the royalty paid by a franchise is a certain percentage of the enterprise's income. Differs from a lump sum contribution in smaller sizes and regularity. The interest rate and period are specified in advance in the contract. But the actual amount of franchise royalty paid depends on the franchisee's performance.

How is it calculated?

To better understand what franchise royalties are, you need to know how they are calculated.

The franchisor has the right to determine royalties in one of several ways. The simplest is the above-mentioned percentage of revenue.

If the franchisee can independently set prices for their goods and services, it may be more convenient to calculate royalties as a percentage of the margin - the difference between the cost and the retail price.

When it is not possible to predict the level of income, a fixed payment amount is assigned. The advantage of this method is that there is no point for the partner to hide his income, and if suddenly things start to not go as well as before, he can always turn to the copyright holder for advice.

Through procurement

Sometimes the royalty is replaced by an obligation to make monthly purchases of goods from the franchisor for a certain amount. The remuneration is included in its purchase price. If, based on the results of the billing period, orders for the required amount are not received, the franchisor has the right to revoke the contract.

This can be seen as some drawback of the franchise as such. The partner is limited in the choice of suppliers, types of goods, and cannot independently select contractors for certain types of services. But all these conditions are specified in advance in the contract, this is a voluntary matter, and everyone decides for himself what is more convenient for him - to copy an existing business, or to create his own.

Payment deferment

The advantage of this direction is that the franchisor’s interests go beyond the simple sale of clones and extend to their development and prosperity. Therefore, brand owners often accommodate new partners by providing various types of installment plans. For example, they reduce the amount of the lump sum contribution. They will take the rest as additional royalty interest. Thus, a franchise with a lump sum fee becomes available to more people.

Another option is to exempt franchisees from monthly payments in the first few months of operation. As soon as the enterprise begins to generate income, it pays the creator royalties at an increased rate.

Size matters

Typically, the royalty rate for a franchise ranges from 1 to 5% of income and depends on many factors. The more prestigious the brand, the higher its requirements for the respectability of partners. High rates are a reliable way to protect yourself from random people in business.

Another factor is the expected level of income of the opening enterprise. For example, a store retail, opened in a large populated area, having a large area, has every chance of paying a higher royalty percentage than a similar a store, but with less traffic.

The costs incurred by the franchisor himself when opening a new enterprise are also important. This may include advertising costs, staff training, and design services.

For a business that has just started operating, the presence of franchise obligations is a serious expense that must be taken into account when calculating profitability and drawing up budgets.

However, when choosing a franchise, you should not choose the most favorable conditions at first glance. Low interest rates or even their absence with a relatively small lump sum payment may indicate the franchisor's dishonesty and lack of intentions to help you promote your business.

Franchise - what is it? Franchising and business scaling: Video

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 is the owner of a trademark or a certain operating methodology entrepreneurial activity, transfers to the franchisee - the buyer of this technology, the rights to use 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 the franchisee’s business activities will be carried out, 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 brands that earn more from lump sum fees 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.

Royalty is one of the main definitions in franchising.

At the beginning of the 16th century in Europe, taxes from subjects and coal miners in favor of Britain began to be called royalties. But in the 21st century, the term has somewhat expanded its meaning.

What is royalty?

Royalties, or regular interest payments– this is a payment to the franchisor for his services on a fixed basis in installments; franchisee pays for the provided franchisor services, technologies, brand, etc. in the form of a fixed interest rate.

Royalty can also mean:

1. Duty.
2. Rent.
3. Tax.
4. Payment for the license.
5. The profit that the owner of the property will receive by transferring it to another private entity for management.

There are several structural types of royalties:

• margin payment(margin – the difference between indicators); designed for the production of goods of different costs and strict control over sales;
• payment from turnover- carried out to the franchisor as a percentage of wholesale or retail sales for a specific period;
• fixed payment– multiple constant payments for equal periods stipulated by the contract;
• copyright royalty– payments to the owner of copyright in a trademark, patents, land, works of art owned by another person for each time the above is distributed or used.

Concept of lump sum and royalty

A lump sum payment is somewhat different from a royalty, although it is used in the same area.

If royalties are regular payments, then a lump sum payment is one one-time payment . It is determined by the cost of using a franchise network by a trademark, enterprise, or services.

The amount of the lump-sum contribution is calculated by the total cost of creating an effective system for the operation of franchising, the declared value, and payment for the services of partners.

In some cases, the lump sum fee is just the cost of purchasing or registering franchises.

A one-time payment will include costs for:

1. Registration of a franchised enterprise and start of its work;
2. Rent of premises, office, warehouse;
3. Payment of hired personnel;
4. Development of an advertising campaign.

Each enterprise has its own individual economic calculation system.

Royalty rate

Royalty rate– these are fixed and regular payments, that is, a certain percentage of the transaction. The rate is determined by agreement between the parties.

It is worth noting: the value of the royalty rate is indicated in the business plan for some time (the immediate period or long-term action) indicating forecasts for the stability of work and its development. This forecast makes it possible to predetermine the percentages of current payments and in the future achieve the desired stable result.

Royalty amount - what is it and what does it depend on?

The amount of payments may depend on the following factors:

• number of enterprises;
• area of ​​buildings;
• actual number of clients;
• name of the enterprise, structure; description of their operating principle; scope of application; characteristics; cost of a term license;
• mention of patents, indication of their data;
• intended countries where the license is sold;
• state of the license (assigned, being developed, there are only calculations);
• volume of use over the years of licensing;
• cost of the license agreement;
• the volume of documentation that describes the technology of operation of the service or product;
• non-exclusive or exclusive rights of the licensee;
• other conditions provided for in the royalty agreement.

The royalty rate is typical for a large and well-established business, where it is difficult to constantly monitor the accuracy of the franchisor’s income.

Royalty waiver method

The method of exemption from royalties is based on the fact that the property in question is not the property of the real owner, but belongs to another legal entity. That is, the property is presented on behalf of the latter, but with a license and the condition of a specific type of royalty.

The real owner does not have a direct relationship with the property, the right to use it during the period provided for in the agreement with the franchisor, but receives royalties for it.

What are the advantages of a franchise?

A franchise can make a business successful without having absolutely anything to do with it. Company or any other entity purchases the rights to use a well-known trademark and manufacture products in accordance with the requirements of the actual owner.

For both the franchisor and the franchisee, the advantages are sufficient to consider active development:

• spreading the brand around the world– increasing the level of recognition and interest among consumers;
• promotion of an already existing business without threat for its existence if the franchise fails; franchisees do not need to start from scratch, a competent business plan is enough;
• the franchisee acquires the necessary skills, abilities, and qualities to conduct business in a specific area. The franchisor provides training for franchisees in accordance with the agreement;
• franchisor(the one who grants the rights to use) receives a favorable financial offer for a long period, profitable raising your business to a new level.

How much do they pay for a franchise?

The advantages of the franchise are certainly enough to make it difficult to become interested in it. But there are also disadvantages. One of the most significant is the high cost. But if you take into account the size of the profit from it, then this disadvantage can be leveled out in a short time.

When registering a franchise, the franchisee is required to pay a lump sum fee as a guarantee of the right to use. The franchise also provides for monthly payments to the franchisor - a percentage of turnover (analogous to rent).

Buying a franchise is an investment in a business that is beneficial for both parties. The cost is provided by the franchisor, taking into account all services and rights provided and is regulated by the level of development of the business in question.

Taxation of royalties

Russian legislation provides for royalties as passive income for both legal entities and individuals. When royalties are received by an individual (resident), the income is retained by the legal entity that pays the royalty interest. That is, royalties individual is not taxed because it is not included in the income from which the single tax is paid.

It is worth noting: If royalties are considered not as income, but as an expense, then the situation is somewhat different. In this case, the royalty must be economically justified and not exceed 4 percent of the total income from the sale of the business.

Who else pays royalties?

Royalties are paid by any entrepreneur who uses copyright or licensing rights to their author or owner, according to the agreement. The contract is drawn up personally by representatives of the owner and consumer or between the consumer and an organization that legally represents the interests of the author or owner.

Franchises without royalties and lump-sum fees

There is virtually no business without investment, and not a single area provides such a method of brand promotion.

Sometimes you can consider franchises without investments in the following options:

1. Income for the franchisor in the regional market. The franchisor helps franchisees by opening points of sale of their property in financially. A new entrepreneur must gain a place in such a market. By purchasing rights (or goods) from the owner, the franchisee sells it at a premium, thus ensuring a constant income.
2. Franchise for an employee. Large companies train staff and the highest results earn the right to purchase a franchise. The owner does not receive the costs of transferring the franchise immediately, but through periodic percentage payments from the income of the new franchisee.
3. The franchisor can grant the rights to use the brand to new persons in the event that the brand trademark, the name has not been promoted until this time and has a weak hold on the market. The purpose of such franchises is to attract partners and promote business.

An individual or legal entity can receive not only active profit from a licensed or copyrighted property, but also passive profit, as royalties, by selling franchises.

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.

Franchising is considered advantageous view activities represented by the purchase of a business by a specific buyer. The owner of a large company provides the buyer with the opportunity to use the trademark and conveys basic information about how to conduct business effectively. He gives out necessary documents and licenses, indicates where to buy equipment, as well as how to train staff.

Due to such numerous advantages, it is necessary to purchase a franchise. To purchase it, you must make a lump sum payment or pay a royalty altogether. Each payment has its own purpose and characteristics.

The popularity of franchising is due to the opportunity to start a business using a working and efficient model, so the likelihood of losses and bankruptcy is minimal.

Therefore, many beginners and even experienced businessmen prefer to buy a ready-made business model. Due to this, you can use the experience of a long-functioning and profitable company.

To purchase a franchise you need to spend a certain amount of money. Buyers must pay a lump sum payment. It is represented by a fixed sum of money, which is transferred by the buyer for the use of the trademark of a long-established and successful company.

The lump sum fee is otherwise called the exact cost of the franchise. After transferring it, the businessman receives the following opportunities from the business owner:

• use of the known;
• providing information on how to properly conduct business to obtain high profits;
• transfer of information about where it is necessary to purchase equipment and raw materials;
• provision of rules on the basis of which personnel training takes place.

Based on this information, a novice entrepreneur will be able to start his own business without any difficulties, using a successful and effective model.

What is included in the lump sum fee and what are its features you will learn in this video:

Determination and purpose of royalties

In addition to the lump sum fee, some franchisors require buyers to pay a royalty. They are represented by monthly transfers Money. With their help, the buyer's right to use the franchise is ensured. It is the royalty that is the main profit of the seller.

Some large companies refuse to charge royalties, so their lump sum fee is high. But such conditions are considered not very attractive for franchisees, since the business owner only needs to sell the franchise at a higher price, but is not interested in whether the buyer’s business will be successful.

If the franchisor requires royalties from buyers, this is a guarantee that the company is interested in the profitability of the new company.

How more money the buyer will receive from business activities, the greater the seller's income will be.

Why is it necessary to pay a lump sum fee?

The need to list it is due to various reasons. It acts as a payment for the use of a trademark, experience and knowledge of a successful company.

Some business owners even pass on information about where to open a company, how to sell various products, and often send a curator to the new company to organize the business. The organization's activities are analyzed periodically.

The main nuances of transferring a lump sum contribution include:

• Initially, the franchisee submits an application to purchase a franchise;
• the business owner studies the possibilities of the new entrepreneur, conducts consultations and studies how well the buyer understands entrepreneurial activity;
• based on the information received, the optimal size of the lump sum contribution is determined;
• it acts as payment for the activities of the company’s employees who study and analyze potential buyer, and is also a payment for the use of a well-known and well-known trademark.

Information on how to run a business is considered so important and significant that 80% of the lump sum fee is paid for it.

How do payments compare?

Lump sum and royalty are different payments, but they have many similar features. The differences include:

• the lump-sum fee is paid only once, but royalties have to be transferred to the seller of the business monthly;
• the fee is a payment for the new business to become part of a large franchise network, but the royalty guarantees the opportunity to use the benefits and brand of a well-known company;
• The size of these payments varies significantly, and royalties can vary depending on the profit received by the franchisee.

The lump sum fee remains unchanged, so it is initially calculated by the employees of the franchise seller, after which the required amount of funds is paid by the buyer.

The general parameters of these payments include the fact that they act as a payment for the use of a trademark and information regarding the correct conduct of business.

If the franchise seller does not require royalties, then the buyer will face a significant down payment and a lack of control over the business by the trademark owner.

How the amount of payments is calculated

Each company uses its own unique way of calculating these payments. When determining the lump sum payment, the following factors are taken into account:

• the costs that a company has to bear in the process of analyzing a potential franchisee and developing;
• costs associated with training the personnel of the new company;
• funds necessary to cover the potential risks of the franchise seller.

Risks are usually associated with the fact that the franchisee will conduct business incorrectly, which can lead to damage to a well-known brand.

Royalty rates can vary significantly from company to company. When calculating the payment, the following nuances are taken into account:

• number and duration of regular consultations;
• rules for training new company employees;
• frequency of analysis of the franchise buyer's performance indicators. you will learn how to conduct it correctly marketing analysis firms;
• profit of the new company.

Franchisees often think that royalties are some percentage of profits, but in reality, this payment includes different indicators. Large companies usually have specialists dedicated to strategic planning for new firms, so some portion of the royalty is represented by their salaries.

For example, they may be preparing a menu or product range, developing a trading algorithm, or engaging in other similar activities.

Some companies require franchise owners to spend a certain amount of money on an advertising campaign. The main company develops creatives, determines ways to introduce information, and also forms the image of all retail outlets.

For this, franchise buyers transfer only a certain amount of funds, which partially covers the costs.

How is the lump sum payment paid?

Many firms offer the opportunity to partially deposit funds, while others require a one-time transfer of a large amount. This takes into account how much money a new entrepreneur will have to spend on renting and preparing premises, purchasing equipment and raw materials, as well as hiring specialists.

The direct buyer of the franchise must independently draw up a business plan to determine possible risks when making a large sum as an initial investment in a business.

Are there franchises without a fee?

Large companies selling franchises may not require a lump sum fee, since it is not their main income. Their profits come from royalties and sales of their own products.

For example, a company sells building materials. It may not require the franchisee to transfer the initial investment, but the main condition is the sale of the franchisor's products.

Often, companies do not even require the transfer of royalties, since it is enough to just sell their goods.

The disadvantage of such cooperation is that companies are only interested in selling their products, and not in the successful activities of the franchise buyer. Typically, an entrepreneur does not become a partner, but only a manager of a branch of a well-known company.

Accounting entries

Companies transferring a lump sum contribution must correctly reflect information about such payment in their accounting records. The following wiring is used for this:

• D97 K60 – reflection of a fixed payment in deferred expenses;
• D20 K97 - inclusion of a lump sum contribution to running costs during the entire period when the commercial concession agreement is in force;
• D91-2 K97 – adding the payment to other expenses.

If an entrepreneur works using the simplified tax system, then he must remember that a lump sum contribution cannot be counted as expenses under this taxation system. You will learn how to correctly fill out a notice of transition to the simplified tax system.

Conclusion

Franchises offer the opportunity for any entrepreneur to open an effective and profitable business. They are sold by large and well-known companies. To use a franchise you are required to pay a lump sum fee and royalties.

The size of these payments can vary significantly from one organization to another and is influenced by many factors. Some companies do not require the use of royalties, but in this case the buyer of the franchise becomes only the head of the branch, and not its direct owner.

You can see what the lump sum fee and royalties are here:

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