What interest rate applies to underpaid amounts discovered during a Big O Tires audit?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
- All of the other adjustment factors, if any, including the portion of any Excess Big O Tire Acquisition Cost that is allocated to tires sold to Business Format Franchise Stores, the Acquisition Cost of tires adjustment factor, the Rebill Charge adjustment factor, the DCPU adjustment factor and the other warranty expense adjustment factor, relate to all tire units sold by Big O to Business Format Franchise Stores, and will be aggregated. In the event the aggregate amount is positive (i.e., franchisees have overpaid Big O), then the aggregate amount will be allocated among the Business Format Franchise Stores based on the total tire units they purchased from Big O, and the amount so allocated will be paid to the Stores via a credit to their trade account with Big O. In the event the aggregate amount is negative (i.e., franchisees have underpaid Big O), then the aggregate amount will be included as a component of the Big O Program Product Prices for the following year as a separate component called "Prior Year True-Up--All Tires." The methodology for including such an amount in the Big O Program Product Prices for the following year will be done so as to fully recover the amount of the underpayment from Business Format Franchise Stores.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
The 2025 Big O Tires Franchise Disclosure Document outlines a process for adjusting tire prices at the end of the year based on various factors, including acquisition costs, warranty expenses, and other adjustments. If an audit reveals that franchisees have underpaid Big O Tires, the aggregate underpaid amount will not be immediately charged to the franchisees. Instead, according to the FDD, this underpayment is included as a component of the Big O Program Product Prices for the following year, listed as "Prior Year True-Up--All Tires."
Big O Tires recovers the underpayment from Business Format Franchise Stores by incorporating it into the next year's Big O Program Product Prices. This means that instead of charging interest on the underpaid amount, Big O Tires adjusts the prices of tires in the following year to recoup the deficit. The methodology for including the underpayment in the Big O Program Product Prices for the following year is designed to fully recover the amount of the underpayment from Business Format Franchise Stores.
This approach provides a structured way for Big O Tires to address pricing discrepancies identified through audits without directly charging interest on underpaid amounts. Instead, the cost is spread out and recovered through future product pricing, which may affect franchisees' profitability in the subsequent year. Prospective franchisees should understand this mechanism and its potential impact on their operational costs and pricing strategies.