Where are royalty fees in the financial analysis?

Yes, royalties should be included in your business plan financials.

Royalties as percent of sales are normally part of the cost of sales. The example I suggested is useful because it keeps the royalties where they belong, in the cost of sales area of the income statement, and not on the sales forecast where they might distort inventory calculations.

Royalties as a single one-time fee are more likeky to be handled as an expense, equivalent to product development expense, which means it's either in start-up expenses or the income statement (profit and loss, same thing) depending only on timing. It's the same thing, so don't put it in both, but one or the other.

These are judgement calls to some extent. Some people want to account for the initial payment as if it were an asset. I don't recommend that, but you should know that some--a minority for sure, but still--accountants would handle it that way. As an expense, it reduces your tax burden and gives a more realistic picture of your financial situation. As an asset, it makes you look more profitable but unless you can resell the rights it isn't accurate.

Tim Berry