What happens if an Alloy franchisee has an understatement or 3% variance on a subsequent audit within a 3 year period?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
Furthermore, if you intentionally understate or underreport Gross Sales at any time, or if a subsequent audit or evaluation conducted within the 3-year period reveals any understatement of your Gross Sales of 3% or more, in addition to any other remedies provided for in this Agreement, at law or in equity, we have the right to terminate this Agreement immediately. In order to verify the information that you supply, we have the right to reconstruct your sales through the inventory extension method or any other reasonable method of analyzing and reconstructing sales. You agree to accept any such reconstruction of sales unless you provide evidence in a form satisfactory to us of your sales within a period of 14 days from the date of notice of understatement or variance. You must fully cooperate with us or our representative in performing these activities and any expenses incurred by us from your lack of cooperation shall be reimbursed by you.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, if a subsequent audit within a 3-year period reveals an understatement of gross sales of 3% or more, Alloy has the right to immediately terminate the Franchise Agreement. This is in addition to any other legal or equitable remedies available to Alloy.
To verify sales information, Alloy has the right to reconstruct sales through methods like the inventory extension method or any other reasonable analysis. The franchisee must accept this reconstruction unless they provide satisfactory evidence of their actual sales within 14 days of receiving notice of the understatement or variance.
The franchisee is required to fully cooperate with Alloy or its representatives during audits. Any expenses incurred by Alloy due to the franchisee's lack of cooperation will be reimbursed by the franchisee. This provision highlights the importance of accurate record-keeping and transparency in reporting gross sales to avoid potential termination of the franchise agreement.