What Are Royalties When Buying A Franchise?
If you are buying a franchise then one of your primary obligations will relate to the payment of royalties to the franchisor. Your obligation to pay royalties is created by your franchise agreement. Your franchise agreement will define when royalties are due (i.e., weekly or monthly) and the amount of your royalty, (i.e., such as a fixed recurring sum or a percentage of your sales).
Royalties are, typically, a recurring fee payable and due to franchisors in exchange for being part of the franchise system. Royalties should be viewed as a continuing license fee. When buying a franchise it is critical to evaluate the impact that royalties will have on the future profitability of your franchised business.