Often when franchising companies use strategies of Master franchising to expand their brand-name they will make a deal with the Master franchise to split the royalty payments. Sometimes it Master franchise will take over an area which already has franchisees in its region. This is done by some franchisors to help alleviate the burden of management of single franchise outlets in remote regions, which were previously sold. It also provides upfront monies from the Master franchise to help with the ongoing cash flow of the franchising organization.

The payments and royalty split of these monies must be clearly defined an addressed in the franchising agreements. Below please find a copy of a clause that I inserted into my franchising companies franchise agreements.

2.2.1.1 Royalties From Sale of Additional Franchises

In consideration of any franchise of The Car Wash Guys or Wash Guys Systems that the Master Franchise sells, Master Franchise shall pay to Franchisor, a royalty for each truck/unit of $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 the Franchisees operate. 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 remainder of the royalty collected by the Master Franchise shall be retained by the Master Franchise for operating expenses.

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Careful attention should be given to the clauses in the Master franchise agreements to protect the cash flow of the franchisor into the franchising company. To insure that your company is protected it behooves you to consult with an experienced franchise attorney. Consider this in 2006.

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