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blog home Buy a Franchise Royalties Represent an On-Going Obligation Owed by Franchisees to Franchisor

If you are considering the purchase of a franchise or you are already an existing franchisee then one question that you may have relates to your rights as a franchisee and what your continuing royalty obligation is all about. That is‚ what do you get in exchange for paying royalties.

Royalties Represent an On-Going System Fee

As a franchisee – assuming that you select the right franchise system and franchisor – you will be accessing an established business with developed business systems and a recognized brand. That is‚ teh franchisor will be providing you with initial training‚ on-going supervision‚ access to the existing business systems and the improvements that the franchisor makes along the way and to a proteced trademark and brand. In many ways‚ a franchisees on-going royalty obligation should be looked at as a continuing license fee that allows you to remain a part of the system and to benefit (collectively with other franchisees) the systems and its improvements. Royalties represent a very legitimate obligation and the value that you derive will largely be determined by the quality of the franchisor and its franchise systems.

So consider that a franchisees on-going royalty obligation represents an on-going payment and license fee to:

  • Benefit‚ on an on-going basis‚ from the business and marketing systems established by the franchisor;
  • Compensate the Franchisor‚ on an on-going basis‚ for granting franchisees access to the system;
  • To compensate the franchisor for on-going support;
  • To compensate the franchisor for maintaining and protecting the trademarks and intellectual property of the system;
  • To update and improve the business systems and the products and services associated with the franchise.

A franchisees royalty payment obligation is not a contingent obligation and is not subject to any discretion as to whether or not a franchisee wishes to pay same.

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To learn more about royalties and other franchisee obligations contact us at (800) 976-4904.

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By Charles Internicola July 22, 2010

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