Under what financial threshold of understatement of Gross Sales will a Browns Chicken franchisee be required to reimburse Brown for the cost of the audit?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Further, in the event such inspection or audit is made necessary by the failure of Franchisee to furnish reports, supporting records, other information or financial statements, as herein required or to furnish such reports, records, information or financial statements on a timely basis, or if an understatement of Gross Sales for the period of any audit is determined by any such audit or inspection to be greater than two percent (2%), Franchisee shall reimburse Brown for the cost of such inspection or audit, including, without limitation, the charges of attorneys and any independent accountants, applicable per diem charges for employees of Brown and all of their travel and room and board expenses. The foregoing remedies shall be in addition to all other remedies and rights of Brown hereunder or under applicable law.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, a franchisee may have to reimburse Browns Chicken for the cost of an audit if an understatement of gross sales is discovered. Specifically, if an audit reveals that the understatement of Gross Sales is greater than two percent (2%), the franchisee is responsible for covering the expenses of the audit. These expenses include charges for attorneys and independent accountants, per diem charges for Browns Chicken employees, and all travel and lodging expenses incurred during the audit.
This provision in the franchise agreement serves as a financial protection for Browns Chicken, ensuring accurate reporting of sales and preventing revenue loss due to underreporting. It also incentivizes franchisees to maintain meticulous records and report sales accurately. The audit can be triggered not only by suspected underreporting but also by a franchisee's failure to provide timely or complete reports, records, or financial statements.
For a prospective Browns Chicken franchisee, this means maintaining accurate and transparent financial records is crucial. Franchisees should implement robust accounting practices and ensure timely submission of all required reports to Browns Chicken. Failure to do so could lead to an audit, and if the understatement of gross sales exceeds the 2% threshold, the franchisee will bear the financial burden of the audit costs. This could potentially amount to a significant expense, depending on the scope and duration of the audit.
It is important to note that this reimbursement for audit costs is in addition to any royalty fees and advertising contributions due on the understated amount, plus interest. This underscores the importance of accurate financial reporting and compliance with the franchise agreement to avoid penalties and maintain a positive relationship with Browns Chicken.