Under what circumstances might an Azal Coffee franchisee be assessed liquidated damages for failing to provide reports or financial statements?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
ARTICLE 10 - REPORTS, ACCESS AND AUDIT, CUSTOMER LISTS
10.1 Reports and Financial Statements.
You must use the standard reporting systems and forms specified by us. You must submit to us a complete statement of Gross Sales and other information specified by us for the reporting periods and on the forms specified by us. You must provide us with copies of all sales or similar tax returns, annual income tax returns, monthly profit and loss statements, monthly balance sheets, monthly inventory statements and annual financial statements. You must provide copies of monthly statements or reports to us within fifteen (15) days of the end of each month and copies of annual statements or reports within thirty (30) days of the end of your fiscal year. You must use the "chart of accounts" designated by us from time to time when recording financial information and preparing financial statements and other reports. We may specify other requirements relating to reporting in the Brand Standards Manual. Your failure to timely provide required reports or financial statements may result in liquidated damages amounts being assessed against you under Section 15.7.
You agree that we may receive information directly from suppliers and you authorize your suppliers to provide information directly to us. You agree to sign separate authorizations or additional documents requested by suppliers or that we deem necessary for us to obtain information directly from suppliers.
We may disclose your financial records in future Franchise Disclosure Documents and reporting analyses presented to third parties and to our actual and potential lenders. Also, we may share information in your reports and financial statements with other franchisees or prospective franchisees in the ordinary course of our business as a tool to improve the Azal Coffee franchise
system's volume of business and as required to support any financial performance representation we make in our Franchise Disclosure Document.
10.2 Records.
You must keep complete and correct books of account, business records, and records of Gross Sales, in accordance with the procedures specified by us and in accordance with generally accepted accounting principles. You must keep all of your business records for the greater of: (a) seven (7) years; or (b) the time period specified by any applicable federal, state, or local law or regulation.
10.3 Inspection; Shopping Service.
We and our designated agents have the right, at any reasonable time and without prior notice, to: (a) inspect the Franchise Business; (b) confer with you and your management employees; and (c) inspect your equipment, signage, fixtures, furniture, and operating methods. We may require that you furnish your customers with an evaluation form specified by us pre-addressed to us. Also, we may require that you maintain a comment box at the Franchise Location, which may only be opened by us. You must fully cooperate with our representatives making any inspection or observing the work of you and your management employees or retrieving information from the comment box.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, a franchisee may face liquidated damages for failing to provide required reports or financial statements in a timely manner. Azal Coffee requires franchisees to use standard reporting systems and forms, submitting complete statements of Gross Sales and other specified information for defined reporting periods. Franchisees must also provide copies of sales tax returns, annual income tax returns, monthly profit and loss statements, monthly balance sheets, monthly inventory statements, and annual financial statements. Monthly reports are due within fifteen days of the month's end, while annual reports are due within thirty days of the fiscal year's end.
Azal Coffee mandates the use of a designated "chart of accounts" for recording financial information and preparing reports. The franchisor may also specify additional reporting requirements in the Brand Standards Manual. If a franchisee fails to provide these reports or financial statements on time, they may be assessed liquidated damages as outlined in Section 15.7 of the franchise agreement.
The specific amount of liquidated damages for failing to provide reports is detailed in Section 15.7. According to this section, if a franchisee fails to provide weekly reports on time, they will be charged $100 per week for each week the report is late. For monthly or annual reports that are not provided on time, the franchisee will be charged $500 for each month the report is late. These liquidated damages are intended to cover Azal Coffee's administrative expenses and damages resulting from the loss of uniformity, quality, reputation, or goodwill within the franchise system.