If a Brueggers Bagels franchisee underreports Gross Sales by 2% or more, who pays for the audit?
Brueggers_Bagels Franchise · 2025 FDDAnswer from 2025 FDD Document
We will also have the right, at any time, to have an independent audit made of your books. If an inspection or audit reveals that any payment to us has been understated, you must immediately pay to us the amount owed, together with applicable interest and late fees as provided in Section 5.5. If an inspection or audit reveals any underreporting of Gross Sales of two percent (2%) or more or underpayment of royalties of two percent (2%) or more, you must, in addition to payment of monies owed with interest, reimburse us for all costs connected with the inspection or audit (including expenses for travel, lodging and wages, and reasonable accounting and legal costs). The foregoing remedies are in addition to any other remedies we may have.
Source: Item 22 — CONTRACTS (FDD page 61)
What This Means (2025 FDD)
According to Brueggers Bagels's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has underreported Gross Sales by 2% or more, the franchisee is responsible for reimbursing Brueggers Bagels for all costs associated with the inspection or audit. These costs include expenses for travel, lodging, wages, and reasonable accounting and legal costs. This is in addition to paying the amount owed with interest.
This provision in the franchise agreement serves as a deterrent against underreporting sales and ensures that Brueggers Bagels receives accurate royalty payments. It also protects the integrity of the Brueggers Bagels system by ensuring all franchisees contribute their fair share.
For a prospective Brueggers Bagels franchisee, this means maintaining accurate and transparent records of all sales. Failure to do so could result in not only back payments of royalties and interest but also significant audit-related expenses. This clause is fairly standard in the franchise industry, as franchisors need a mechanism to verify sales and protect their revenue streams, but the specific percentage threshold (2% in this case) can vary.
It is important for potential franchisees to understand the full scope of their financial reporting obligations and the potential consequences of non-compliance. Brueggers Bagels franchisees should establish robust accounting practices and regularly review their sales data to avoid any unintentional underreporting and the associated penalties.