How to Get a Royalty Percentage for a Franchise
- 1). Purchase or obtain legal ownership to the business before it is franchised. You can obtain this status by opening the business yourself, or investing either actively or passively in the company itself. Keep track of your ownership stake and stay active in the company dealings (such as mergers, acquisitions, and additional rounds of investment) so that your voice can be heard when it is time to take the business to the franchise platform.
- 2). Be part of the original store or business before it becomes a franchise. Most people who are able to secure royalty agreements were there at the inception of the business. Even if you do not own a piece of the business, you can ask management to be included in the royalty agreement because you helped form or grow the initial brand.
- 3). Obtain a lawyer to review your ownership status within the company. While it is certainly nice to have handshake deals, they can fall by the wayside as companies start to grow. Make sure that there is a clause in your contract that entitles you to franchise royalty payments when that time arises.
- 4). Understand the type of franchise royalty payment you will receive. There are many different methods of royalty payments. Some are calculated on gross profits, net profits, some are tied to monthly sales, some have minimum guarantees. Make sure that your franchise royalty is specifically drawn out within the legal language of your contract.
- 5). Review the franchise contracts. As the business grows and the first franchise deals are set into place, you want to make sure those deals align with the agreement you have with the company. If the franchise operator thinks he is paying royalties on net, but your contract says gross, there will be a bit of a discrepancy in that regard. Have your lawyer review those contracts to ensure they align.
- 6). Hire an accounting representative to keep track of the royalties as they come in. As more and more franchises pop up around the world for your business, you will want an accounting representative to vet the books from the parent company to ensure that you are getting your proper royalties.
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