To start own business of one desire often happens insufficiently. The skill in economic problems is useful for calculation of profit and expenses in any business. So, information on that, a royalty - what is it, will be useful to calculation of monthly assignments, besides taxes, the rent and other payments.
What does the royalty mean?
The people who are not connected with business and business seldom think of what means a royalty. In translation from foreign languages this term matters royal, state. It designates a type of compensations made by the owner of a franchize, copyright, patent for something or a certain property for their use. These compensations represent a license reward or the monetary payment paid monthly or quarterly if other conditions are not provided by the contract.
The royalty can be paid in case of possession of natural or land resources - it will be rent payment, or other property, but similar compensations gained great popularity in cases of possession of a franchize. Payments of a royalty can be as fixed, and in the form of percent. In the second case the percent can be charged in two ways:
- depending on the income sum;
- from a difference between the chosen economic indicators - a margin.
What is the royalty in business?
It is possible to start business from scratch or purchases of the ready project, by the choice of a franchize which besides its cost often demands payment of a royalty for management of it. The similar option is useful that it has support from the franchiser. Payment of a royalty is made strictly under the terms of the contract. Payments can be fixed or variables and be paid during various periods. The similar strategy of conducting own business is applicable practically in all activities. The royalty in alcoholic business, automobile, tourist or in the service industry meets.
What is the royalty in a franchize?
One of widespread types of activity in which use of a royalty appears it is franchizing, that is purchase of a franchize – a possibility of use of others brand in the activity on terms of the contract. Its possession implies use:
- slogan;
- music;
- images;
- the adjusted technologies;
- methods of service or production;
- experience or reputation.
In this case the royalty for use of the trademark will represent monthly payments of a certain size for use and management of new business. It is necessary to distinguish grand pianos from lump-sum payment – that sum which is paid once at the time of purchase of the trademark.
Often the franchize without royalty when business does not demand payment for its management owing to its simple scheme meets. For the beginning businessman it is plus, but the obvious scheme of new activity leads emergence of the same types and the high competition that do not suit the unexperienced businessman.
What does the royalty differ from the fee in?
In development of own business it is important to know and consider distinction of economic indicators which can be useful for conducting the business. Though both terms matter compensation or a reward for use something, the royalty knows essential difference from the fee.
- The fee consists in the amount of payments and a way of their calculation. For it the sum is always fixed and is paid at a time.
- At a royalty the sum can vary depending on terms of the contract and payments are reusable.
How to calculate a royalty?
Having chosen the direction of development of business, it is necessary to consider how the royalty pays off to present the approximate sum of monthly assignments and expenses. There are three ways of calculation:
- the fixed rate which sum is enshrined in the contract;
- percent from the general profit;
- interest rate from the margin sum.
Method of release from a royalty
The beginning businessmen often ask a question what business means without royalty? The answer is simple. The lack of a royalty implies refusal of the owner of collection of an extra charge for use it:
- brand;
- territories;
- property;
- copyright.
Release from a royalty is in certain cases possible at observance of terms of the contract on which the owner is ready to exempt the franchisee from payment of payments for business management if that is available. It should be noted that the similar scheme does not cancel the standard procedure of payment of taxes. Having thought of conducting the business, it is important to consider a set of factors. It is necessary to have knowledge in various fields of activity - economic, legal, financial or profile, for example, to know a royalty what is it, or in time to resort to consultation of experienced experts.