When does the Minimum Royalty payment begin for additional Extreme Art Studio Businesses?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
OTHER FEES**
| Type of Fee(1) | Amount | Due Date | Remarks |
|---|---|---|---|
| Royalty(2) | The greater of 8% of Gross Sales ("Royalty") or $500 per month ("Minimum Royalty") | Within five days after the end of the calendar month | The Royalty is based on "Gross Sales" during the previous month. Gross Sales are defined in Note 2. You must pay your Royalty via electronic funds transfer ("EFT"), or such other manner we may prescribe. The Minimum Royalty begins six months after you open your first Extreme Art Studio Business and immediately after you open additional Extreme Art Studio B |
Source: Item 6 — OTHER FEES (FDD pages 13–18)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, the Minimum Royalty payment for additional Extreme Art Studio Businesses begins immediately after you open them. The royalty is the greater of 8% of Gross Sales or a minimum of $500 per month. This royalty fee is due within five days after the end of each calendar month and must be paid via electronic funds transfer (EFT) or another method prescribed by Extreme Art Studio.
This means that as soon as a franchisee opens a second or subsequent Extreme Art Studio location, they are obligated to begin paying either 8% of that location's gross sales or $500, whichever is greater, as a royalty fee each month. This is in contrast to the initial Extreme Art Studio location, where the minimum royalty payment begins six months after opening.
For a prospective franchisee, this highlights the importance of carefully projecting revenue and expenses for any additional locations. The franchisee needs to be prepared to meet the minimum royalty obligation from the moment the new location opens. This immediate obligation could impact the financial planning and working capital requirements for expansion.
Franchisees should also be aware that "Gross Sales" includes all revenue received from operating the Extreme Art Studio Business, including cash, checks, credit and debit card payments, barter exchanges, and proceeds from business interruption insurance. However, Gross Sales does not include any federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority, or any customer tips.