Franchise Agreements, Cash Flow and Royalty Payments

By: Lance Winslow
Submitted: 2007-01-17 12:43:59
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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

Article source: Expert Articles

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