Under what condition must a B Bops franchisee pay for the cost of an audit?
B_Bops Franchise · 2025 FDDAnswer from 2025 FDD Document
| Late fee and interest on past due payments | $200 plus interest at 1.5% per month (or, if less, the maximum rate permitted by applicable state law) on amounts past due. | As incurred. | Any payment not received by the Company on or before its due date is deemed to be past due. If any payment is past due, you must pay the Company, in addition to the past due amount, a late fee of |
|---|---|---|---|
| Interest on deficiency | Interest at the rate of 1.5% | On demand by the | $200 plus interest at the rate specified above on the past due amount from the date it was due until paid in full. The Company has a |
| in fees resulting from under reporting of gross sales; audit expense | per month (or, if less, the maximum rate permitted by applicable state law) on any deficiency determined to exist. If the amount of gross sales has been understated by more than 3%, you must pay the cost of the audit, including any travel, lodging, wages, accounting and related expenses. | Company. | right to audit your books and records for a period of five (5) years after the submission of any financial report for purposes of determining whether gross sales in your report are accurate. |
Source: Item 6 — OTHER FEES (FDD pages 14–18)
What This Means (2025 FDD)
According to B Bops's 2025 Franchise Disclosure Document, a franchisee must pay for the cost of an audit, including travel, lodging, wages, accounting, and related expenses, if the amount of gross sales has been understated by more than 3%. B Bops has the right to audit a franchisee's books and records for up to five years after the submission of any financial report to determine the accuracy of gross sales reported.
This provision in the franchise agreement is designed to ensure the accuracy of reported gross sales, which directly impacts the royalties B Bops receives. Underreporting sales by more than 3% triggers the franchisee's responsibility to cover the audit expenses, acting as a deterrent against inaccurate reporting. The interest rate on any deficiency is 1.5% per month, or the maximum rate permitted by applicable state law.
For a prospective B Bops franchisee, this highlights the importance of maintaining accurate and transparent financial records. Implementing robust accounting practices and regularly reviewing sales data can help avoid unintentional errors. Franchisees should also be aware of B Bops's audit rights and the potential financial consequences of underreporting gross sales, including covering the cost of an audit and paying interest on any deficiency. This clause is fairly standard in the franchise industry, as franchisors rely on accurate sales reporting for royalty calculations.