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Entering a Licensing Agreement – What to Know

by | Sep 26, 2022 | PKF Texas - The Entrepreneur's Playbook®, Insight-Post

There are various nuances when you’re navigating a licensing agreement – the best terms, your intellectual property, and not losing up to millions of dollars in royalties. Approachable Advisors™ like Contract Compliance Manager, Carlos Gomez, help businesses with this and gives insights on the next PKF Texas – The Entrepreneur’s Playbook®.

Jen: This is the PKF Texas – Entrepreneur’s Playbook®. I’m Jen Lemanski and I’m back once again with Carlos Gomez, a Contract Compliance Manager here at PKF Texas and one of our Approachable Advisors™. Carlos, welcome back to the Playbook.

Carlos: Thanks, Jen.

Recommendations for Licensing Agreements

Jen: So, we touched on licensing a little bit last time we had you here. What advice are you giving to clients? Or what are you recommending clients do if they’ve already got an existing licensing agreement or they’re looking to get into a licensing agreement with someone?

Carlos: So, if they’re looking to get into licensing agreement, we try to help them negotiate the best terms, whether it’s defining gross sales or territories that are included, what’s your audit rights, those types of things that protect your intellectual property and your brain in the marketplace.

Or the certain types of products that you want associated with, as well as like the color scheme. Now, we can do the reverse for people who want to get the license from somebody who has that property, but it’s just a different approach at that point.

How We Can Help

Jen: So, do we ever look at these agreements and find money for people, and if so, how do we find that?

Carlos: Yeah, so that’s been there already in place and there’s a concern. And one of the biggest things that happened, especially in licensing, is you have no visibility into a licensee’s business. They just self-report to you what sales are and then what the amounts that they owe you on royalties.

Now, what gets difficult about that is most accounting systems, they don’t really care what the agreement says. They don’t understand what the term gross sales defined as per the agreement they want to report in, in accordance with GAAP and just make sure all their books are closed. And so, it can be very difficult.

There are instances where we see deductions that are taken on invoices to customers, whether it’s a timely allowance or volume discount, that isn’t in accordance with the agreement. And so, with those things, you’re losing potentially hundreds, thousands, if not millions of royalties because of those types of deductions. And there are other things as well, but those are big things we see.

Jen: Sounds like they need to call you if they’re doing any kind of licensing agreement so that we can get in there and help them find everything.

Carlos: Yeah. We’re happy to help.

Jen: This has been another thought leadership production brought to you by PKF Texas – The Entrepreneur’s Playbook®. For more information about this and other topics, visit www.pkftexas.com/ContractCompliance. Tune in next week for another chapter.

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