What is the basis for calculating the royalty income that Golden Krust Caribbean Restaurant franchisees must pay?
Golden_Krust_Caribbean_Restaurant Franchise · 2024 FDDAnswer from 2024 FDD Document
The franchise agreements typically require the franchisee to pay initial, nonrefundable franchise license fees prior to opening the respective restaurant, as well as continuing fees, or royalty income, on a weekly basis based upon a percentage of franchisee gross sales.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Golden Krust Caribbean Restaurant's 2024 Franchise Disclosure Document, the royalty income is calculated as a percentage of the franchisee's gross sales. Franchisees are required to pay these continuing fees, also known as royalty income, on a weekly basis.
This means that the amount a Golden Krust Caribbean Restaurant franchisee pays in royalties directly correlates with their sales performance. Higher sales will result in higher royalty payments, while lower sales will result in lower royalty payments. This arrangement aligns the franchisor's income with the franchisee's success, incentivizing the franchisor to provide support and resources to help franchisees grow their businesses.
It's important to note that these royalty fees are ongoing expenses for the duration of the franchise agreement, which typically lasts for ten years. Additionally, the FDD states that any royalty revenue not paid within 30 days will be reserved against, meaning Golden Krust Caribbean Restaurant takes steps to ensure timely payments. Prospective franchisees should carefully consider the percentage charged on gross sales to determine if the royalty structure is financially viable for their business.