What happens if an audit of a Basecamp Fitness studio discloses an understatement of Gross Revenues?
Basecamp_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
We will have the right to audit or cause to be audited any financial information you provide to us, and your books, records, and sales and income tax returns.
If any audit discloses an understatement of the Gross Revenues of your Basecamp Studio for any period or periods, you will, within five (5) days of receiving the audit report, pay to all Royalty Fees and General Advertising and Marketing Fund Contributions due on the previously unreported Gross Revenues, plus late payment charges.
In addition, if an understatement for any period equals two percent (2%) or more of the Gross Revenues of your Basecamp Studio for the period, you must reimburse us for the cost of the audit, including, without limitation, the charges of the person auditing your records, and their travel and living expenses.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Basecamp Fitness's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated their Gross Revenues, the franchisee is required to pay all Royalty Fees and General Advertising and Marketing Fund Contributions due on the previously unreported Gross Revenues, along with late payment charges, within five days of receiving the audit report. This ensures that Basecamp Fitness receives the correct percentage of revenue as outlined in the franchise agreement. The Royalty Fee is 8% of Gross Revenues, and the General Advertising and Marketing Fund Contribution is 2% of Gross Revenues.
In addition to paying the outstanding fees and charges, if the understatement is significant, specifically equaling two percent or more of the Gross Revenues for the period examined, the franchisee must also reimburse Basecamp Fitness for the cost of the audit. This reimbursement covers all expenses associated with the audit, including the auditor's charges, travel, and living expenses. This provision serves as a deterrent against underreporting revenues and ensures that Basecamp Fitness is compensated for the expense of uncovering the discrepancy.
This policy is fairly standard in franchising, as franchisors rely on accurate revenue reporting to calculate royalties and marketing fund contributions. The financial repercussions of underreporting, including covering audit costs, are designed to encourage accurate and transparent financial reporting from franchisees. Prospective Basecamp Fitness franchisees should be aware of these potential costs and ensure they have systems in place to accurately track and report Gross Revenues.