When does the Minimum Royalty payment begin for the first Extreme Art Studio Business?
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, which is $500 per month if it exceeds 8% of Gross Sales, begins six months after you open your first Extreme Art Studio Business. For any additional Extreme Art Studio Businesses, the Minimum Royalty payment starts immediately upon opening.
This means that for the first six months of operation, an Extreme Art Studio franchisee only pays the royalty based on 8% of Gross Sales. After this initial period, the franchisee will pay either 8% of Gross Sales or $500, whichever is greater. This ensures Extreme Art Studio receives a minimum payment even if sales are low.
For a prospective franchisee, this has significant implications for financial planning. The franchisee needs to be prepared to meet the Minimum Royalty payment starting in the seventh month of operation. It is important to factor this into the business plan and ensure sufficient cash flow to cover this expense, especially if initial sales are lower than anticipated. The franchisee should also note that the royalty is based on Gross Sales, which includes all revenue received, as defined in Note 2 of Item 6.