In order to represent a certain brand or use its name, you need to pay royalties. In addition, there is another type of payment - a lump-sum contribution. There are some differences between these concepts, accepting them, one should study the specifics and what they have in common. The difference between royalties and lump sums lies in the amount of their payments. If the lump-sum fee has to be paid only once, royalties should be paid continuously at certain intervals.

For most merchants who are thinking about opening their own franchising facility, the concept of "lump sum" is not entirely clear and understandable. This is not surprising, the term is borrowed from the English language, not everyone thoroughly possesses it. A lump-sum fee is the key to the success of franchising. The franchise consists of several payments, the most significant is the lump-sum payment.

It often happens that large companies resort to the services of small businesses or individuals to expand their business. This type of cooperation is mutually beneficial. The meaning of the relationship lies in the transfer by the partner, who is called the franchisor in the market conditions, the right to use its technologies, services, products and trademark to the junior partner. At the same time, a cooperation agreement is drawn up between the partners. This contract provides for a *lump-sum* (one-time initial payment) that the junior partner pays to the franchisor for the services provided to him.

In any individual case, the lump-sum contribution is calculated differently, because there are no specific limits set for it in any state document. The initial payment is always described in the cooperation agreement.

A one-time * lump sum payment * is rarely used. It is mainly used in cases where a junior partner unknown on the market creates doubts about whether he will be able to commercialize and successfully release the development. A lump-sum payment is used if it is difficult to control products released under a license. In this case, the franchisor may not receive the data necessary for the calculation.

The lump-sum payment in most cases is not just a single payment, but an ordinary advance payment. As a rule, the lump-sum payment accounts for 10-20% of the license price.

The flat rate is also a lump-sum tax, which is sometimes also called a lump-sum tax. This is a fixed fee, it is charged in amounts that do not depend on economic variables. It should be noted that the *lump-sum tax* can be attributed to fixed costs, since it does not depend on the volume of production.

Lump sum and postings

Change and introduction of the amount of the established capital - which are reflected in the process of rendering services by the franchisor. The established capital is contributed by the junior partner. By providing services, the franchisor reflects the movement of postings, a contribution to the capital. The movement of wiring is accompanied by documents. The franchisor takes into account the movement of capital by providing the agreed services.

Today, the most popular and profitable way to build a business is to open a business through the purchase of a franchise. A businessman along with it receives a low purchase price of goods for business, trained staff by experienced franchisors, ongoing support and a recognizable type of service or brand. A sufficient amount of lump sum and royalties will contribute to the successful implementation of the business.

When buying a franchise, the junior associate pays a certain amount, the lump-sum fee is a significant part of the fee. The lump-sum contribution is paid once, it can be paid in installments or in one amount. Most often, licensors demand payment as soon as possible.

The concept of royalties refers to other payments. These payments must be made by the junior partner who purchased the franchise. Royalties can be a fixed amount agreed in the contract, or a percentage of the profits of the junior partner. For the successful operation of a new business, partners choose the most optimal royalty rate, which is beneficial to each of them. If the royalty rate is too high, then the profitability of the franchise will be underestimated, which may make the business meaningless. To start a business when buying a franchise, you need to pay attention to *lump fee and monthly royalties* in order to determine whether the franchise is profitable or not, and whether it is worth starting a business with it.

Royalty rate

If the franchisor determines the lump-sum fee, then the royalty is a certain rate. *Royalty rate* - this is a certain amount, remuneration to the owner for the use of his copyright. This means that the junior partner under the contract pays for the trademark, brand and name under which he conducts an independent business and receives his income from it. It should be noted that the royalty price includes promotions, marketing costs, staff training, posting information on the franchisor's or company's website.

There are three main types of royalty calculation:

• Percentage from the brand. This type of royalty is often used in cases where the store has different markup levels for goods.
• Fixed calculation. Fixed payment, it depends on the contract. The assigned amount depends on the area of ​​the building, the number of clients served, the cost of the franchisor's services. This type of royalty is most often used by companies that find it difficult to accurately calculate the amount of income.
• Percentage of the company's turnover. To date, this type of royalty is the most common. The junior partner pays a percentage of the turnover to the franchisor, which is previously specified in the documents.

*Royalty Franchise* is the payment of a junior partner for property or technological know-how transferred to him by the franchisor. Payment is made for obtaining the right to use some items protected by copyright or patents. In franchising, royalties are the most common. In this case, compensation is charged for the fact that the junior partner has the right to use trademarks, logos, slogans that identify a particular company. Thus, a junior partner working under a false name attracts additional customers, while he does not need to spend money on developing and creating his own brand.

Depending on the terms in the contract, the junior partner must pay royalties under one of three widely used schemes:

• Fixed royalty.
• Percentage from the brand.
• Percentage of turnover.

In fact, the lump-sum fee is the cost of the franchise, which the franchisee must pay without fail. In the broad sense of the word, a lump-sum contribution can have a somewhat greater significance. To understand this term deeper and find out how it appears at all, one should start from its basics.

The franchise market originated in the US, which is why the franchise fee is referred to as the franchise fee. To be more precise, this term refers rather to a license fee. Consequently, the franchisee in the US pays rather for the right to operate under a particular brand.

In Russian legislation, there is no term "lump contribution", as well as no definition of the word "franchising". It turns out that domestic laws do not protect the scope of franchising. True, at the moment there is a definition of a commercial concession agreement - usually on the basis of it, a company and its partner regulate their relations. This agreement is described in detail in Article 1030 of the Civil Code of the Russian Federation - it is noted there that under the agreement the copyright holder can receive payment. Based on this, it can be assumed that the amount of the lump-sum contribution is indicated in the commercial concession agreement. At the same time, the franchisee, in turn, receives the right to use the brand, methodology, standards and products of the parent company.

True, it is worthwhile to understand that a lump-sum fee may not be the only fee for a franchise business. As a rule, the partner has to pay separately for the rent of the premises, the purchase of goods and the necessary equipment. In this regard, it is worth immediately discussing possible costs with the franchisor. At least, approximately this scheme is used by most companies offering a franchise.

We can say that the payment of a lump-sum fee implies some services, often consulting. That is, the franchisor company provides legal and accounting assistance to the partner. Also, a lump-sum fee may include a trip to the place of opening of a new point and further support on all emerging issues.

Lump sum in the language of an accountant

If we talk about the accounting of a lump-sum contribution, then it falls under the Accounting Regulation "Accounting for Intangible Assets" (document No. 153n dated December 27, 2007). How exactly this happens, let's look at an example.

Suppose a company has 100 franchisees. At the same time, the lump-sum contribution has a fixed amount for a long time. Naturally, the number of partners increases over time and selling a franchise for such a company is the main means of earning. In this regard, all lump-sum contributions from partners in the accounting report are displayed as sales income. If we talk about companies in which franchising is not the main source of income, then the lump-sum fee is displayed in the form of operating income.

If we talk about taxation upon receipt of a lump-sum contribution, then it is designated as a service rendered. The tax on the amount of such payment is accrued from the moment the franchise agreement comes into force.

What determines the amount of the lump sum?

Analyzing the franchise market, you can see that the size of the lump-sum contribution varies greatly from company to company. For some, it looks like a symbolic payment, and for someone, it looks like a fortune. And sometimes a lump-sum fee is not charged from the partner at all. The latter case is more relevant for those enterprises that produce the offered goods themselves. Either the lump-sum payment simply implies the first batch, the size of the initial purchase, or, more simply, the threshold for entering the business. That is, in principle, there may not be a lump-sum fee, but the franchisee will still have to spend this or that amount. Often this fee may be waived and with a strong desire to increase brand awareness, as well as to influence competitors. Favorable conditions for partners allow solving many problems of the parent company.

We said above that a lump-sum fee often includes a whole range of services, for example, assistance in opening a point, providing advertising materials and training employees. All this does not cost the franchisor for free, so he needs to at least recoup the costs. In most cases, the lump-sum fee is not the net profit of the owner of the company and, as a rule, a lot of money is spent on paying the work of the franchisor's employees, because they also spend considerable time preparing the business and further assistance. Based on this, the franchisor makes some markup in order to at least make some money on the sale of the franchise.

It is essential that the amount of the lump sum is acceptable. That is, so that its size suits the franchisor, and at the same time it is accessible to potential partners. Often this indicator is a key factor in the development of the company. Acceptable conditions for both parties are, as you know, a great opportunity to scale your business.

It should also be taken into account that the franchising market also sometimes has a lot of competition. Often, franchisors in the same area seriously compete with each other, so the conditions for their work can be seriously different. Naturally, with high competition, some offers sometimes seem more interesting than others. It is important here not to succumb to emotions and choose exactly what is right for you and will allow you to successfully develop a franchise business.

Sometimes it also happens that the lump-sum fee is indicated in dollars or euros - this is typical for foreign companies wishing to open their branches in Russia. At the same time, part of the money from the lump-sum contribution here goes to the domestic intermediary company, which is the main representative office of the parent company. This approach is very convenient for foreign enterprises, because in this case they are already protected from fluctuations in the exchange rate in our country. Naturally, it also provides all the standard services needed to start a business. It turns out that here, too, the lump-sum contribution does not go in the form of net profit to the owner - most of the expenses are sometimes paid for the work of employees and all supplied materials. As a rule, opening a branch of a foreign company is more expensive, especially when it comes to a brand with a worldwide reputation.

Sometimes, when forming the amount of the lump-sum contribution, the cost of the technologies themselves is also taken into account. Suppose that the franchisor has some special secret, for example, knows the peculiarities of cooking. Naturally, with due demand, it is also valued quite expensively.

Thus, the size of the lump-sum contribution depends on the specifics of a particular business and on the principles of the organization. Somewhere it practically does not matter at all, but somewhere it is the main income of the company. In any case, the parent company will always calculate all the risks and costs when calculating the lump sum.

Is it possible to find a franchise without a lump-sum fee?

Perhaps someone will think about the question: why do we need a lump-sum contribution at all? Surely, many entrepreneurs do not want to pay “just like that” the money of the parent company and want to save money. There really is a way out, and if you wish, you can find a franchise for which a lump-sum fee is not charged. As a rule, this is often found in trade, but it is possible to find this in other types of business. An entrepreneur should first of all decide what type of business he wants to do, and then all that remains is to choose from the existing options. This is not so difficult to do, however, you need to take into account the specifics of the business. To confirm this, below are examples of franchises for which such a fee does not need to be paid.

Be sure to check out the franchises without a down payment in our catalog (OVER 100 OFFERS!) -

firefly

The company involves the sale of unique coloring books and postcards. The first outlet under this brand opened in 2016. Since 2018, the company has been providing a franchise to everyone.

The initial investment starts from 50 thousand rubles. It is assumed that the monthly profit of the partner will be about 60 thousand rubles per month. Therefore, you can recoup all investments here literally in one or two months after buying a franchise. In this case, no other payments, except for the payment for the goods, are required. That is, everything is quite easy and simple. The parent company, in turn, provides all related advice and ensures uninterrupted supply of goods.

For cooperation, an area of ​​​​1 to two square meters is required here (a small rack with goods is put up on the trading floor). Moreover, the products of this company can be successfully sold in an existing outlet.

Gerry Weber

German brand Gerry Weber plans to open a women's clothing store. The company appeared in 1973, and it has been cooperating under the franchising system since 1999.

Estimated volume of investments: 6 million rubles. Payback time: about one year. Based on this, we can say that a partner can earn about 500 thousand rubles a month.

The partner is provided with comprehensive support, training of sellers is carried out. A store business plan is developed on an individual basis, assistance is provided in the purchase of a suitable product range. In addition, the franchisor company helps to choose the most suitable premises for work. Also, after buying a franchise, the entrepreneur is directly assisted in opening a store.

To open a Gerry Weber franchise business, a room of one hundred to two hundred square meters is required. It is important that it is located in a modern shopping center or on the main street of the city. Naturally, the profit of the franchisee seriously depends on the location of the outlet, so this factor must also be taken into account when buying the specified franchise.

upside down house

The Upside Down Franchise is a business based on the organization of a unique art object. As the name implies, the structure is a house standing on the roof (more precisely, at an angle of about ten degrees). From the outside it seems that the house is about to fall, but inside a person feels rather unusual.

Similar houses already exist in different cities and have been successfully tested as a place for mass visits. They are photographed against their background and at the same time they are quite suitable for a local landmark. The information about the franchise notes that in cities with a population of over two hundred thousand people, they are in high demand. Obviously, this is best suited for settlements with good tourist traffic. The company itself has been operating since 2015 and at the moment eleven such houses have already been opened under this franchise.

Required amount of investments: from 2 million 300 thousand rubles. Approximate earnings: 300 thousand rubles a month. Estimated payback period: three to eight months. It is noteworthy that the franchisor gives an official guarantee for this. The main profit comes from ticket sales (on average, about thirty thousand people visit such a place a year). It is possible to sell photo services, souvenirs, drinks and snacks. In fact, in such a place you can offer almost any service related to the organization of leisure, for example, rental of bicycles or hoverboards.

By purchasing this franchise, the partner receives a business plan and all instructions for finding a suitable place to work. All related documentation is also given, allowing you to conduct activities according to the law.

To open an upside down house franchise business, you need a plot of land ranging from twenty-three to thirty square meters.

My Brilliant Smile

The My Brilliant Smile franchise is a business for those who want to make money on teeth whitening. The company was founded in 2013 and launched the franchise system in 2014. Now the firm has about one hundred and twenty partners. It currently has five branches.

The franchise information indicates that an entrepreneur can earn about 70 thousand rubles a month, and the average check here is three thousand five hundred rubles. At the same time, you can get from thirty to sixty clients on average per month. The volume of investments in this business is about 100 thousand rubles. It turns out that in one or two months an entrepreneur can recoup all his investments.

The partner is assisted in promotion through social networks, is provided with a personal account and a training program. Necessary promotional and informational materials are provided, sets of company contracts are provided. The CRM system and the possibility of online registration of clients are being set up. Analysis of competitors is carried out, a one-page site is provided. In addition to standard procedures, clients are offered whitening products at home.

The area of ​​​​the room here should be at least ten square meters. This franchise does not require any licenses and qualified medical professionals. Literally one or two employees are enough for full-fledged activities. It turns out that absolutely any entrepreneur can start cooperation on this franchise and, it should be noted, with relatively low investments.

dream line

The Dreamline franchise is the sale of mattresses, beds and other related furniture. The company's production capacity reaches thirty thousand units per month. The enterprise itself appeared in 2007 and at the moment it has fourteen branches.

The initial investment here is 400 thousand rubles, and the partner's monthly profit can reach up to 350 thousand rubles. Consequently, the franchisee's investment can pay off in one to two months.

Representatives of the franchisor, in turn, travel to the partner's city for marketing analysis and assistance in selecting suitable premises. The profitability of the future store is also estimated. Provided to the partner and samples of products. It is also noteworthy that the first exposition of furniture is provided to the partner in installments. An individual project is developed in accordance with the selected retail space. The store is provided with advertising posters, catalogs and other branded materials. Recruitment and training of store staff. Information about the partner is posted on the official website of the company.

For cooperation under this franchise, the store area must be at least forty square meters. It is important to place a point in specialized furniture centers, or in places with good targeted traffic. Properly choosing a suitable place to work, it will be possible to talk about a quick return on investment.

smart vision

The Smart Vision franchise is an income from a medical optics salon. The first store under this brand was opened in 2009, and there are currently fifteen such outlets in total.

Investments here start from 400 thousand rubles, and the payback period takes about five months. Based on this, we can say that the monthly earnings of a partner can be about 80 thousand rubles.

When buying a franchise, an entrepreneur receives a salon design project and a package of documents that reflect all the nuances for full-fledged work. A step-by-step marketing plan is also given to successfully launch the store. In the course of cooperation, modern software products are used, with the help of which you can control your business from anywhere in the world. A personal website is also provided along with social networks. Assistance is provided in the recruitment and training of staff. The franchisee is assigned a personal manager, who further supervises all his work. The necessary medical equipment is provided for rent and this allows you to save a substantial amount.

Depending on the available investments, the partner can choose the appropriate format of cooperation. The area of ​​the future store will also depend on this choice: the minimum option should have an area of ​​​​twenty, and the maximum - from sixty square meters. It is noteworthy that for cooperation under this franchise, you do not need to have experience in entrepreneurial or medical activities.

Conclusion

So, we figured out that a lump-sum fee is, as a rule, a fee for a range of services provided by the franchisor. This usually means comprehensive assistance in organizing and conducting activities, as well as the provision of all letterheads and promotional materials.

By paying a lump-sum fee, the entrepreneur immediately buys a franchise and saves himself from many organizational problems. Given the cost of a lump-sum contribution, you can already find out the specific price of a particular type of activity. Again, it helps to calculate all kinds of risks. In general, we can say that a lump-sum contribution is a kind of threshold for entering a business. Often it is more symbolic and does not represent the main source of income for the franchisor. Moreover, it is more profitable for many companies to simply sell their goods in bulk and provide all kinds of support to the entrepreneur.

Some companies may not charge a lump-sum fee at all, but then the franchisee should find out what expenses are possible when starting a business. Naturally, they can be quite large and without a lump-sum fee. Moreover, expenses can be unforeseen, but it is with a lump-sum contribution that many of them can be completely eliminated. At the same time, if an entrepreneur fundamentally does not want to pay it when opening a branch of the company, then he can easily find offers without a lump-sum fee - there are no problems with this today either, and above we have given only the smallest part of such examples.

The concept of a lump sum (amount) comes from the German expression die Pauschale(literally - a package, a large piece) and means the total cost of something, without a detailed indication of the prices of the components of the subject of the transaction. In simple terms, this is the total amount of purchase for a certain amount of goods or services.

In franchising, the term lump sum refers to the cost of the direct right to enter the market under the brand name of the franchisor's company. If, however, to consider this expression from a practical point of view, we can say that this is the total price of the acquired business model of an existing company. Physically, such a payment is a single fixed amount (often rounded to the nearest whole), which can be expressed in freely convertible (dollar, euro, pounds sterling) or national currencies (rubles, hryvnia).

For what and when they pay a lump-sum payment in franchising

The initial payment is made by the franchisee one-time and only after the signing of the main contract. If the franchisor offers to deposit money before closing the deal, most likely you are dealing with an unreliable company. Many perceive a lump sum as the total cost of a finished business, but in fact this amount is a payment for a certain list of information and services, which may include:

• Brand book and the right to use the brand (trademark, trademark);
• Marketing strategy and business development program in the short term;
• Guidelines and guidelines for starting and running a business;
• Consultations of the franchisor's specialists on the selection of premises, hiring employees;
• Training of personnel and management;
• Recipes, technological maps, instructions for the production of products or the provision of services;
• Logo layouts, samples of contracts for working with clients, website templates, design projects of premises;
• Licenses and certificates;
• CRM-system and accounting software (if used);
• Bases of suppliers of raw materials, equipment.

In some cases, promotional materials and first batch products may also be provided. In turn, it is not included in the lump sum:

• The price of renting or buying premises for production and office;
• Cost of equipment and raw materials;
• Expert business support after launch (these services are paid for by royalties);
• Taxation and cost of business registration;
• Divisional advertising campaign.

Theoretically, the lump sum is a one-time payment. In other words, it is paid once in full amount. However, in practice, it can be divided into an advance (paid after the conclusion of the contract) and a residual amount (paid after the start-up of the enterprise). In the case when the amount of payment is very high, the contract may stipulate the execution of installments with the payment of several installments of the payment as the new business is opened and developed. This format gives the franchisee more guarantees, since the franchisor has an interest in the branch opening faster and starting to bring profit to the franchisee.

Another important point may be the origin of the funds contributed as a down payment. Some franchisors are skeptical about the presence of debt capital as part of such a payment.

What determines the amount of the initial payment

Each franchise has its own cost, and in some cases, the franchisor provides several options for a lump-sum fee. The amount of the latter can vary from several thousand rubles to several million. For example, one of the most expensive franchises in the world is the brand Choice Hotels International, with a lump sum of US$14.6 million.

The actual amount depends on a variety of criteria, including the following factors:

• The popularity of the franchise (trademark). The more famous the brand, the higher the cost of the business model, because in this case, the franchisee is guaranteed to receive customers from the first day of work.
• The size of the opened branch. For example, store franchises can be linked to the area of ​​the sales floor, offering business model buyers several standard options of different cost.
• Region of operation. For small towns, the lump-sum contribution may be lower, since the potential income is also lower.
• Possible risks of the franchisor. Poor-quality work of the franchisee can harm the entire franchise, and therefore the amount of the lump-sum fee initially includes possible damage.

In recent years, companies have also appeared on the franchise market offering the use of their own business model without making a lump-sum fee. They must be treated with utmost care. As a rule, in this case, two options are possible:

1. The franchisor wants to advertise his product, positioning it as an opportunity to build a business with minimal start-up capital. In reality, the lump-sum payment itself can be presented in the contract as an obligation to purchase advertising materials, service or staff training.
2. The franchise is just entering a new market. If a company is well known in one region, but does not yet have branches in others, it can provide more favorable conditions for franchisees, since the market, and most importantly competition, has not yet been explored, which does not allow an accurate assessment of possible development prospects and profitability.

The category of franchise without a lump-sum fee can also include programs for the development of promising managers of the franchisor's company to the level of an independent entrepreneur. In this case, the income of the parent company is formed exclusively from royalties. On the other hand, such offers are not implemented in the public domain, but are provided only to trusted partners.

How does a franchisor calculate the lump-sum fee?

If for the franchisee a lump-sum payment is the price of a package of rights, services and information, then for the franchisor it is the market value of his intellectual property, experience and labor. To determine its size, it is necessary to calculate the following parameters:

• The cost of designing a new unit (trading floor, workshop, premises in which services are provided). The easiest option is to prepare several standard projects by analogy with an existing business, having received the real cost of the work.
• Staff training costs.
• Share for the development of accounting systems, CRM, website. In this case, a certain percentage of the cost of products used by the parent company is taken, the value of which depends on the planned number of franchisees involved. For example, in order to work effectively in a given region, there should not be more than five representative offices, in this case you can put in a lump sum up to 20% of the funds you spent on purchasing the software you use.
• Franchise sale costs (advertising, presentations).
• Expected profit from the affiliate. This parameter, first of all, allows you to calculate royalties, but it is also important for determining the lump-sum contribution. It shows how interested franchisees will be in your particular model.
• License cost.
• The cost of preparing a brand book and a business plan.
• Time spent on consulting and expert assistance when launching a new division.
• Expected profit from the sale of the franchise. This amount determines how much you value your own experience and labor costs for developing a successful business model.

In addition to the nominal costs of compiling the main franchise package and the cost of basic services, when determining the size of the lump-sum fee, it is necessary to analyze its real market value, comparing it with existing similar offers from other brands.

Is it possible to return the cost of the franchise?

Since the lump-sum fee is actually a payment for the opportunity to work on the market under a certain brand, it is difficult to return it upon termination of the contract. The only way to do this is to prove that the agreement itself is invalid. This is done exclusively in court and in the presence of the following circumstances:

• The contract does not comply with existing standards and regulations established by law. For example, according to the laws of the Russian Federation, such transactions must be registered with Rospatent, and if this is not done within the established time frame, the contract will be declared invalid.
• The franchisor did not fulfill the obligations prescribed in the contract.
• The business model information provided by the franchisor is not unique and is publicly available and free of charge.
• The company selling the franchise does not own the exclusive rights to the attributes of the business model being implemented. So, it may turn out that the franchisor does not own the rights to a trademark or a unique recipe.

Legal aspects and taxation of the lump-sum contribution

In the domestic market, the purchase of a franchise is formalized as a commercial concession agreement, and from the legal point of view, the lump-sum fee is a taxable payment and subject to a tax deduction.

For the franchisor, the lump-sum payment received from the franchisee is, from the point of view of the tax code, non-operating income (unless the sale of the franchise is the main activity of the company). It is subject to VAT payable at the end of the reporting period in which the payment was received or at the time of transfer of rights to the franchisee.

If the franchisor is a foreign company, the franchisee acts as a tax agent and pays VAT, withholding it from the lump-sum fee. This applies not only to companies on the standard taxation system, but also to franchisees working on the simplified tax system.

On the other hand, if the main right holder is a taxpayer on a simplified system, then VAT is not charged from receiving a lump-sum contribution, and the payment itself is reported simply as income from activities and is subject to income tax at the previously established rate.

In order to receive a tax deduction for making a lump-sum contribution, the franchisee needs to know what intellectual property objects are included in the contract by the franchisor and whether they fall under the category of expenses on which the tax can be reduced. The latter include the following costs:

• Innovative inventions with proper patents.
• Utility models and finished industrial designs.
• PC software used in the work of the franchisee.
• Specialized databases.
• Know-how, as well as trade secrets and technologies.

Understanding the term lump sum itself, what it is in simple terms, and how it is formed from the standpoint of the franchisor and franchisee, you can always correctly assess the cost of a franchise. This will allow you both to minimize risks when looking for a suitable offer to start a business, and to ensure the optimal balance between expected profit and competitiveness when implementing your own offer.

To the question “What is a lump-sum contribution?” can be answered literally in a nutshell - this is the cost of the franchise.

For some, this answer may be sufficient, but the more curious and inquisitive person, who is also going to buy a franchise, will not be satisfied with this simple explanation.

So what is a lump sum? How and by what parameters is it formed? Is there a difference between a lump sum and royalties? And how do they differ from each other? Why is the lump-sum fee of some franchises over a million, while others are completely absent?

Let's try to answer these questions.

The lump sum is...

The etymology of the phrase "lump contribution" in Russian business vocabulary is quite interesting.

Despite the fact that franchising in its modern form took shape in the United States, in the Russian lexicon the term that refers to the cost of a franchise in America is franchisefee(translated from English - license fee) - did not take root. Instead, we use the German term die Pauschale, which in turn is derived from the related word der Bausch in the translation meaning "thick piece of something".

Even more strange is the fact that the definition of a lump-sum contribution, as in principle, and franchising, as a type of entrepreneurial activity in general, is not in Russian legislation. However, the absence of these concepts in the civil code does not mean that franchising does not exist in our country or is not legalized at all. Franchising in Russia works, but is still regulated by a commercial concession agreement (Articles 1027-1040 of the Civil Code of the Russian Federation). In the same place, in Article 1030 of the Civil Code of the Russian Federation, it is mentioned that a commercial concession agreement may contain a clause on remuneration that the user (read “franchisee”) pays to the right holder (read “franchisor”) in the form of a one-time and / or periodic fixed payments (read "lump sum" and "royalties").

Thus, lump sum is a fixed amount that the franchisee pays to the franchisor under a commercial concession agreement. In practice, this means that an entrepreneur, when buying a franchise and concluding an agreement with a franchisor, acquires the right to conduct business under the franchisor's trademark, using his name, technologies, standards and products.

Lump sum and royalties

As mentioned above, a commercial concession agreement provides for both one-time, one-time payments, and periodic ones. The lump sum is a one-time payment. Pay and forget. It is also called the entry fee or initial payment, as it is paid immediately after the conclusion of the commercial concession agreement. Only after the payment of a lump-sum fee does active interaction begin between the franchisor and the franchisee.

Remember, a lump sum is not the only investment in a franchise business. Investments in starting a franchise business are not limited to a lump sum. No one has canceled the purchase of equipment, the purchase of goods, the payment of staff, rent, etc. You can find out what the initial investment will be spent on by requesting this information from a franchise representative at BIBOSS.

Lump sum: postings in accounting

Like any other items of expenses and income, the payment of a lump-sum fee is reflected in the accounting and taxation of both the franchisor and the franchisee.

The rules for recording accounting transactions of parties to franchising activities are based on the provision “Accounting for intangible assets” PBU 14/2007.

Consider the system of accounting and taxation of a lump-sum contribution using the example of a company that has been developing according to the franchising system since 2006 and has more than 1000 franchised enterprises. The economic model of this franchise provides only for the payment of a lump-sum contribution in the amount of 370 thousand rubles.

By the way, it should be noted that the activity under the franchise agreement is the main one for the 33 Penguins company, therefore, the receipt of remuneration under the agreement - a lump sum - is reflected in the sales income. If franchising is not the main activity for the company, the entrance fee is reflected in operating income.

When receiving a lump-sum contribution, use accounting entries 51/62, 76, and when paying 60, 76/51.

Speaking of payment. The accounting department of the franchisee "33 Penguins" takes into account the lump-sum contribution in deferred expenses on account 97 "Deferred expenses". Further, the lump-sum contribution is attributed in equal shares to the costs of ordinary activities during the term of the contract. In the case of the 33 Penguins franchise, within 5 years.

In the future, the accounting departments of the franchisor and the franchisee interact with each other within the framework of the "Supplier-Buyer" model.

Speaking about the taxation of a lump-sum contribution, it must be borne in mind that for VAT purposes the granting of exclusive rights for use under a franchising (commercial concession) agreement is considered as the provision of services.

If the contract is concluded on the terms of subsequent payment, then VAT is charged on the amount of the lump-sum payment on the date the contract enters into force. If the commercial concession agreement provides for advance payments: a one-time payment - before the transfer of the right to use the complex of exclusive rights; periodic remuneration - before the beginning of the quarter for which it is paid.

In this case, the right holder is obliged to calculate VAT on the date of receipt of the advance payment based on its amount and the estimated rate. Then, within five calendar days, issue an invoice to the user for the advance payment received. After the transfer of the right to use the set of rights (for a one-time payment) or the end of the quarter (for periodic payments), the right holder calculates VAT on the entire amount of the remuneration due and issues an invoice to the user. The amount of tax paid from the advance is deductible.

The Seven Faces of the Lump-sum

So, in order to open a franchise business, an entrepreneur needs to pay a lump-sum fee. It would seem that everything is simple, but it was not there.

If you study the franchise offers at BIBOSS, you will notice that the size of the lump-sum fee varies from franchise to franchise - from 15 thousand to 2.5 million rubles- and sometimes not at all.

For example, no lump sum Most clothing stores operate on franchising, as well as those companies for which franchising is a way to increase the number of sales outlets for their products. The more franchised enterprises and the more goods they sell, the greater will be the volume of production, which means that profits will also increase. That is why it does well without charging a lump-sum fee from its partners.

But if you look at the franchise as a product or service, then the lump-sum fee performs the function of a price and is formed according to a certain pricing system. From this point of view,

The franchise has its own cost and markup, from which the lump-sum fee is made.

But you should also not forget about the markup on the goods - the franchise. Let's remember the most important rule of pricing - this is the provision of a product or service at the price that the buyer is ready to give, and at the same time the seller will be satisfied. The franchise is no exception. A lump-sum fee is the amount that an entrepreneur is willing to pay in order to start a business under a certain brand and with the help of a franchisor. The more he values ​​the opportunities he acquires, the higher the lump sum becomes.

In any case, the size of the lump-sum fee is determined by the franchisor, so we suggest that you familiarize yourself with the principles for the formation of a lump-sum fee for several companies.

A lump-sum contribution for our company is the amount that a partner pays for using the Tasty Help brand.

The lump-sum fee of our franchise can be called enough symbolic. This amount is specified in the commercial concession agreement, which is concluded for an indefinite period.

We created a franchise not for the sake of receiving a lump-sum contribution, but to popularize our brand and increase the points of sale of our products. That is why we do not increase the lump-sum fee, are loyal to partners and are committed to long-term work.

We take the lump-sum fee as a certain degree of seriousness on the part of the franchisee - his willingness to represent the brand and grow his business with us.

The absence of a lump-sum fee is an additional advantage of the franchise offer. Without a lump sum and royalties, the franchise is more attractive and competitive in the franchise market.

Thus, the franchisee pays only for the volume of goods that is provided for by the supply agreement concluded together with the commercial concession agreement.

The initial fee for buying a Papa John's franchise is 35 thousand dollars. First of all, the cost of the lump-sum fee in dollars is due to the fact that PJWRI develops the Papa John's master franchise, which means that PJWRI initially agrees on the amount of the lump-sum fee, and also pays the copyright holder - the American company Papa John & 's - for the opening of each pizzeria opened sub-franchisees. And he pays in dollars.

It is logical that we also accept an entry fee from our sub-franchisees in this currency. This is what most international companies operating on franchising in Russia do in order to protect themselves from currency fluctuations which are so common in our country.

It is worth adding that the lump-sum contribution has a special economics of miscalculation. First of all, it is related to the expected profitability of a franchised establishment.

If we consider this issue in more detail, then, first of all, a lump-sum fee is a payment for the right to work under a world-famous brand, for the technologies and recipes provided. But not only.

For example, the initial contribution of Papa John’s, which is paid by sub-franchisees, also covers the costs of PJWRI for conducting training for franchisees in Moscow, for the company’s specialists to travel to open a restaurant in the franchisee’s city, for developing a restaurant layout and marketing plan. In addition, after paying a lump-sum fee, the sub-franchisee receives a ready-made, and most importantly, powerful sales tool- site localized for each partner.

$35,000 isn't a big or small amount, it's our franchise price. A good product cannot be cheap. Papa John's motto is "Better Ingredients. Better Pizza” and the principles of work are built with an emphasis on quality. We also work with franchisees with high quality, and we ask for an appropriate fee for this.

A lump-sum (one-time) payment is used by itself quite rarely. It is used mainly in cases where the buyer of the license is a firm unknown in the market, and there is doubt whether it will be able to establish a successful release and commercial implementation of the development. Only a lump-sum payment can be applied if it is extremely difficult to control the volume of products released under the license. In this case, the licensor may simply not receive the data necessary for the calculation.

Lump-sum payments(fixed amounts paid as a lump sum or in installments) is recommended to apply if the licensee transfers all rights to the object of the license, or the contract is concluded with a little-known licensee, whose activities are difficult to control. This form of payment is particularly advantageous to the licensor. It significantly reduces its risk, eliminates the need to control the activities of the licensee, provides the licensor with a fairly large amount at a time (although with royalties the total amount of payments may be higher). The amount of lump-sum payments varies within a fairly wide range: 5-25% of the total amount.

Due to the need to pay significant amounts before receiving a profit (income), a higher degree of risk, the licensee does not always agree to a lump-sum payment.

It is impossible to accurately calculate the size of the lump sum payment by simply adding the amounts determined on the basis of royalties due to changes in the value of cash, inflationary processes. In a lump-sum payment, the licensee acts as the lender and the licensor as the recipient of the loan. This determines their behavior when concluding a license agreement. The licensor should strive to receive such an amount that, being invested in the bank, would provide him with a profit, in terms of amount and time of receipt (together with the amount invested in the bank) equal to payments in the form of royalties. In turn, it is beneficial for the licensee to reduce the settlement price to such a value that the difference between the royalty and the lump-sum payment is equal to the cost of the loan. The reduction (discount) factor is calculated using the compound interest formula:

where A i is the discount factor for the amount of royalties received in the i-th year;

i - the number of years following the accounting year (the accounting year is considered zero);

r - discount rate (%).

The discount rate should not be lower than the commercial loan rate for long-term credit operations, otherwise it would be more profitable to put money in the bank. The value of the discount factor should be determined in advance for the most common discount rates and terms of license agreements. The discounting method, i.e., bringing the cost indicators of different years to a comparable form, allows you to recalculate current payments in the form of royalties into lump-sum payments and vice versa:

,

where C pi - royalties to be paid in the i-th year;

C ri - net discounted receipts for the license in the i-year;

i - year of payment in the form of royalties.

The estimated price of a license for lump-sum payments is determined by the formula:

In order to encourage the use of intellectual property by the licensee, payment of fees should be closely linked to this fact. So, when paying a lump-sum payment in two or three installments, it is advisable to time the translation of the first part by the time of the conclusion of the contract, the second - by the development of the facility by the licensee, and the third - by the output of production at design capacity. The initial payment, as a rule, must reimburse the licensor for its costs for marketing, concluding an agreement, transferring technical documentation, and, under certain conditions, the costs of developing a scientific and technological achievement. If the lump-sum payment is transferred at a time, it is recommended to associate it with the development of the object.

The lump-sum payment is present in most license agreements not as the only type of payment, but as a kind of advance paid to the licensor after the transfer of documentation. The lump-sum payment, as a rule, accounts for 10-20% of the total license price.