What is the minimum cost an Annex Brands franchisee will be charged for an audit if they are required to reimburse Annex Brands?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
n or audit. In the event any such inspection or audit will disclose an understatement of the Gross Receipts of the Center, Franchisee will pay to Franchisor, within 10 days after receipt of the inspection or audit report, the royalty fees and marketing fees due on the amount of such understatement, plus interest at the rate of 1.5% per month (or the maximum rate allowed by law on underpayment) from the date originally due until the date of payment. Further, if an inspection or audit is made necessary by the failure of Franchisee to furnish reports, supporting records, or other information, as required by this Agreement, or to furnish reports, records, and information on a timely basis, or if an understatement of Gross Receipts for any accounting period is determined by the audit or inspection to be greater than 5%, or if Franchisor discovers a history of similar under-reporting offenses, Franchisee also will reimburse Franchisor for the cost of the audit or inspection (minimum $500), including the charges of any independent accountants and/or contractors and the travel expenses, room and board, and compensation of employees of Franchisor performing the audit. A late fee of $35 per week will be charged from December 31st of each year showing underreporting of greater than 5%, or from the end of the audit period for a partial year audited, calculated until the audit fees are p
Source: Item 22 — Contracts (FDD pages 109–110)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, if an audit is required due to the franchisee's failure to provide necessary reports or if an understatement of gross receipts exceeds 5%, the franchisee will reimburse Annex Brands for the audit cost. The minimum cost for such an audit is $500. This reimbursement covers the expenses of independent accountants or contractors, along with the travel, lodging, and compensation for Annex Brands employees involved in the audit.
This policy means that franchisees must maintain accurate and timely financial records to avoid triggering an audit and the associated costs. The $500 minimum charge acts as a baseline, but the actual cost could be significantly higher depending on the complexity and duration of the audit, especially if it involves external professionals or extensive travel.
Additionally, a late fee of $35 per week will be charged from December 31st of each year showing underreporting of greater than 5%, or from the end of the audit period for a partial year audited, calculated until the audit fees are paid in full. This late fee compounds the financial burden on franchisees who fail to maintain accurate financial reporting.
Franchisees should ensure they understand the reporting requirements and maintain meticulous records to minimize the risk of an audit and potential reimbursement costs. This includes not only the direct costs of the audit but also potential penalties and interest on underpaid royalties and marketing fees.