Sales Tax, Royalties & Brand Fund Fees: What Franchisees and Franchisors Need to Know
Running a franchise comes with financial responsibilities that go beyond everyday business expenses.
Between sales tax, royalty payments, and brand fund contributions, there are several important numbers to keep track of throughout the year.
And while these expenses might seem straightforward, small bookkeeping mistakes can add up over time.
Whether you’re a franchisee managing a single location or a franchisor overseeing an entire system, understanding what needs to be tracked can help you avoid surprises, stay organized, and make better financial decisions.
Here’s what both sides need to know.
1. Sales Tax: Know What You Collect and What You Owe
For franchisees, sales tax is an important responsibility that can easily become complicated.
Depending on your business and location, you may be required to collect sales tax on certain products or services.
But here’s something important to remember: Sales tax collected from customers isn’t revenue your business gets to keep.
It’s money collected on behalf of the appropriate taxing authority.
What Franchisees Need to Track
How much sales tax is collected
Which products or services are taxable
Applicable state and local tax rates
Sales tax filing and payment deadlines
Any exemptions or special requirements
Sales tax requirements vary by state and locality, making accurate recordkeeping especially important.
2. Royalties: Accurate Tracking Matters on Both Sides
Royalty payments are one of the most common financial obligations in a franchise system.
Most franchisees pay ongoing royalties to their franchisor, often calculated as a percentage of sales.
For example, if a franchise agreement requires a 6% royalty on $50,000 in monthly sales, the royalty payment would be $3,000.
However, every franchise agreement is different. Some may include minimum payments, different reporting requirements, or specific rules about which sales are included in the calculation.
For Franchisees
It’s important to keep accurate records of:
Royalty invoices and payments
The royalty rates outlined in your franchise agreement
Payment due dates
Sales figures used to determine royalty amounts
Properly recording these expenses helps franchisees understand their operating costs and maintain accurate financial reports.
For Franchisors
Managing royalties across multiple franchise locations brings another layer of complexity.
Franchisors need to track:
Royalty payments received from franchisees
Outstanding balances
Differences between reported sales and royalty amounts
Payment history across locations
Royalty revenue recorded in their financial statements
As a franchise system grows, keeping these records organized becomes increasingly important.
3. Brand Fund Fees: Don’t Overlook These Contributions
In addition to royalties, many franchise systems require franchisees to contribute to a brand or marketing fund.
These contributions typically support marketing efforts across the franchise system, including national advertising campaigns, brand awareness, and promotional initiatives.
Brand fund fees are often calculated as a percentage of sales, although requirements vary by franchise.
For example, if a franchisee is required to contribute 2% of $50,000 in monthly sales, that would equal $1,000.
Combined with the 6% royalty example above, that’s $4,000 in monthly franchise-related fees.
For Franchisees
Brand fund contributions should be accurately recorded and accounted for when reviewing profitability.
It’s important to track:
Brand fund invoices and payments
Required contribution amounts
Payment deadlines
Additional local marketing requirements
For Franchisors
Franchisors need organized records of brand fund contributions across their franchise system. This may include tracking payments received, outstanding contributions, and ensuring transactions are recorded correctly.
Franchisors need organized records of brand fund contributions across their franchise system. This may include tracking payments received, outstanding contributions, and ensuring transactions are recorded correctly.
4. Why Accurate Bookkeeping Matters on Both Sides
Whether you’re operating a franchise location or managing an entire franchise system, accurate bookkeeping plays an important role in understanding your finances.
For franchisees, organized financial records help you:
Understand your true operating expenses
Monitor profitability
Prepare for upcoming payments
Build more realistic budgets
Make informed decisions about your business
For franchisors, accurate financial records help you:
Track royalty revenue and outstanding payments
Manage brand fund contributions
Maintain consistency in financial reporting
Identify discrepancies across locations
Better understand the financial performance of your franchise system
The more locations involved, the more important it becomes to have consistent financial processes in place.
Get Ahead of Year-End Financial Planning
As 2026 comes to a close, now is a good time to review your financial records and make sure everything is organized.
For franchisees, this means reviewing expenses, confirming payments have been recorded correctly, and preparing for upcoming financial obligations.
For franchisors, it’s an opportunity to review royalty collections, outstanding balances, and financial reporting across the franchise system.
Keeping up with these responsibilities throughout the year can help prevent a stressful year-end cleanup.
And if you’re already thinking ahead to 2027, having accurate financial records is an important first step toward building a realistic budget.
Our free 2027 Franchise Budget Template gives you a place to start, with monthly sections for income, cost of goods sold, operating expenses, franchise-specific costs, other expenses, and projected net profit.
Related Reading: How to Build a Better Budget for Your Franchise in 2027
Franchise Accounting You Can Count On
Based in Omaha, Nebraska since 2013, we have been providing professional and reliable bookkeeping services for franchise owners.
Our bookkeeping services are designed to make your life easier so that you can focus on what you do best!
