Under what conditions will an Afuri Ramen Dumpling franchisee be required to pay for a Business/Financial Audit?
Afuri_Ramen_Dumpling Franchise · 2024 FDDAnswer from 2024 FDD Document
| Type of Fee | Amount | Date Due | Remarks |
|---|---|---|---|
| Business/Financial Audit7 | Our reasonable costs for the audit if you understate revenue by more than 2% or fail to deliver to us required reports on time | Immediately upon demand | See notes below. |
-
- Audits. We may audit your reports, books, statements, business records, cash control devices, and tax returns at any time during normal business hours. Audits will be conducted at our expense unless you understate the Revenue for any reported period or periods by more than 2 percent or unless you fail to deliver any required report of Revenue or any required financial statement in a timely manner. In the event of an understatement or failure to deliver, you will reimburse us for all audit costs. These will include, among other things, the charges of any independent accountant and the travel expenses, room, board, and compensation of our employees incurred in connection with the audit. You will immediately pay all Royalty Fees, Advertising Fees, all other fees and late payment charges that the audit determines are owed. These payments will not prejudice any other remedies we may have under this Agreement or by law.
Source: Item 6 — Other Fees (FDD pages 11–16)
What This Means (2024 FDD)
According to Afuri Ramen Dumpling's 2024 Franchise Disclosure Document, a franchisee may be required to cover the costs of a Business/Financial Audit under specific circumstances. Afuri Ramen Dumpling retains the right to audit a franchisee's financial records, and while these audits are typically at the franchisor's expense, the franchisee becomes responsible for the costs if certain discrepancies or failures are identified.
Specifically, Afuri Ramen Dumpling will require the franchisee to reimburse the reasonable costs of the audit if the franchisee is found to have understated revenue by more than 2% in any reported period. Additionally, if a franchisee fails to submit required revenue reports or financial statements in a timely manner, they will also be responsible for covering the audit expenses. These costs can include charges from independent accountants, as well as travel, lodging, and compensation for Afuri Ramen Dumpling employees involved in the audit.
In the event that an audit reveals an understatement of revenue or a failure to deliver required reports, the franchisee is obligated to immediately pay any outstanding Royalty Fees, Advertising Fees, and other fees, along with any late payment charges that the audit determines are owed. It is important to note that these payments do not limit Afuri Ramen Dumpling's ability to pursue other remedies available under the Franchise Agreement or by law. Therefore, it is crucial for franchisees to maintain accurate financial records and submit all required reports on time to avoid incurring audit costs and potential penalties.
This is a fairly standard practice in franchising. Franchisors need to verify revenue to accurately calculate royalties and protect the integrity of the brand. Franchisees should ensure they have robust accounting practices in place.