What is the threshold for underpayment or understatement of amounts due to Bhc Franchisor that triggers reimbursement for audit costs?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
If an examination or audit discloses an underpayment or understatement of any amount due Franchisor by 2% or more, or if the examination or audit is made necessary by Franchisee's failure to furnish required information or documents to Franchisor in a timely manner, or it takes Franchisor's auditors an unreasonable amount of time (more than eight hours) to assemble Franchisee's records for audit, Franchisee must reimburse Franchisor for the cost of having Franchisee's books and records examined or audited (this remedy will be in addition to any other rights or remedies Franchisor has under this Agreement or otherwise, including Franchisor's right to terminate this Agreement).
Source: Item 23 — Receipts (FDD pages 52–230)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has underpaid or understated any amount due to Bhc by 2% or more, the franchisee is responsible for reimbursing Bhc for the expenses associated with the audit. This provision is designed to ensure accurate financial reporting and compliance with the franchise agreement.
In addition to the 2% threshold, Bhc also requires the franchisee to cover the audit costs if the audit was necessitated by the franchisee's failure to provide the required information or documents in a timely manner. Similarly, if the franchisee's records are disorganized to the point that it takes Bhc's auditors an unreasonable amount of time (defined as more than eight hours) to assemble the necessary documents for the audit, the franchisee will be responsible for the audit expenses.
This policy serves as an incentive for Bhc franchisees to maintain accurate and organized financial records, submit required documents promptly, and ensure that all payments to Bhc are accurate and timely. Failing to meet these obligations can result in the franchisee incurring additional costs for audits, on top of any underpaid amounts and associated interest at an APR of 18%.