Buying a Franchise in Ireland: Checking Royalty Calculations

A franchise royalty can look straightforward: pay the franchisor a percentage of sales. But the definition of sales, the timing of payment and any minimum charge can matter as much as the headline rate. Before buying a franchise in Ireland, ask your accountant to calculate the royalty from the proposed contract, not just the recruitment brochure. This guide concerns the Republic of Ireland.

Establish exactly what the royalty covers

Start by locating every clause that creates an ongoing royalty or management service fee. The name is less important than the obligation: a fee might be calculated as a percentage of turnover, a fixed amount, a minimum payment or a combination of these.

Keep royalties separate from advertising contributions, software subscriptions and other recurring charges. You need to understand the royalty on its own before adding it to the wider cost of joining the franchise community.

Request a written schedule showing:

• The rate or fixed amount and when charging begins.
• Any minimum royalty, including during a quiet trading period.
• Whether different products, services or sales channels attract different rates.
• Any thresholds, introductory concessions or stepped rates.
• The payment frequency and due date.

If a reduced introductory rate is offered, identify its precise end date or trigger. Do not assume it lasts until the business becomes profitable. Equally, ask whether a minimum charge is payable during temporary closure or before the first customer sale.

Read the definition of sales line by line

The critical wording may sit in a definitions section rather than the payment clause. Terms such as “gross sales”, “turnover” and “revenue” should not be treated as interchangeable without checking their contractual meaning.

Ask your accountant and solicitor to resolve the following points together:

• VAT: Is the sales figure used to calculate the royalty inclusive or exclusive of VAT? Separately, does VAT apply to the royalty invoice?
• Discounts: Is the royalty based on the price actually charged or a price before discounts?
• Refunds and cancellations: Can refunded transactions be deducted, and in which payment period?
• Unpaid invoices: Does the fee arise when you invoice the customer or only when payment is received?
• Platform sales: Is the calculation based on the customer’s full payment or the amount remaining after a delivery platform or marketplace deducts its commission?
• Gift vouchers and advance payments: Does the fee arise at purchase, redemption or another point, and how is double counting prevented?

These are questions to resolve, not deductions you can assume you are entitled to make. A contract may require royalties on revenue that leaves little margin after third-party charges.

Also clarify how centrally collected customer payments are allocated to your business. If the franchisor processes bookings or payments, request a worked explanation of the amount credited to you and the royalty charged against it.

Test the calculation using sample transactions

Ask the franchisor for a sample royalty statement and reproduce it independently. Use the contractual definitions to work through ordinary sales and less straightforward transactions.

Include a discounted sale, a partial refund, an unpaid customer invoice and a sale through a commission-charging platform. If relevant, add a voucher sold in one month and redeemed in another. For each transaction, record the customer payment, the royalty calculation base, the fee and the period in which it becomes payable.

Then test a low-sales month. A minimum royalty can make the effective charge substantially higher than the advertised percentage. Calculate the total royalty as a proportion of actual sales rather than looking only at the stated rate.

Finally, check the payment sequence. If royalties become due before customers pay you, the business must fund the gap. Ask how later refunds or corrections are credited, whether unused credits carry forward and what happens to an outstanding credit when the relationship ends.

Put calculation rights into the agreement

Ireland has no dedicated franchise legislation, statutory franchise-specific pre-sale disclosure regime or general requirement to register franchise agreements. General contract law and applicable Irish and EU competition, intellectual property and other laws govern the arrangement.

The Irish Franchise Association’s Code of Ethical Conduct applies to its members. It is not legislation and does not replace clear contractual payment terms. Do not assume that consumer cancellation rights protect a franchise investment made as a business transaction.

Have an independent solicitor check that the agreement records the agreed calculation method, permitted deductions, payment dates and correction procedure. Ask for access to sufficiently detailed statements to verify charges, particularly where the franchisor collects customer money.

If a worked example conflicts with the agreement, resolve the wording before signing. A helpful spreadsheet is not a substitute for an enforceable term.

Practical takeaway: Before committing, calculate a sample royalty statement yourself. Confirm what counts as sales, when payment falls due and how adjustments work, then ensure those rules are recorded in the agreement.