What happens if a Buildingstars franchisee underreports gross sales?
Buildingstars Franchise · 2025 FDDAnswer from 2025 FDD Document
Right to Audit.
BUILDINGSTARS may, from time to time, cause one or more complete audits to be made of the affairs and records relating to the operations of the Business.
Upon request by BUILDINGSTARS, FRANCHISEE shall make such books, records and information available to BUILDINGSTARS or its designated representative at all reasonable times for review and audit by BUILDINGSTARS at FRANCHISEE'S place of business.
If it is found that FRANCHISEE underreported Gross Sales, FRANCHISEE will reimburse BUILDINGSTARS for the amount of the Account Sales Fees, Administration Fees, Royalty Fees, and Insurance Program Fees, if applicable, that would have been billed had billings been reported accurately, plus interest on those amounts at the rate of the lesser of one and one-half percent (1-1/2%) per month or the maximum legal rate in the jurisdiction where the Business is located.
In addition, in the event that an audit by BUILDINGSTARS results in a determination that any or all of the Account Sales Fee, Administration Fees, Royalty Fees and Insurance Program Fees, if applicable, paid to BUILDINGSTARS are deficient (underpaid) by more than two percent (2%), the FRANCHISEE shall promptly pay to BUILDINGSTARS any amounts shown to be due and all costs and expenses incurred by BUILDINGSTARS in conducting the subsequent audit to determine that the FRANCHISEE is reporting correctly (not the audit which disclosed the original deficiency), including salaries of BUILDINGSTARS' representatives, travel costs, room and board and audit fees.
Source: Item 22 — CONTRACTS (FDD page 43)
What This Means (2025 FDD)
According to Buildingstars' 2025 Franchise Disclosure Document, Buildingstars has the right to audit a franchisee's business records. If an audit reveals that a Buildingstars franchisee has underreported gross sales, the franchisee will be required to reimburse Buildingstars. This reimbursement covers the Account Sales Fees, Administration Fees, Royalty Fees, and Insurance Program Fees (if applicable) that would have been charged had the sales been accurately reported. Additionally, interest will be applied to these underpaid amounts. The interest rate is the lesser of 1.5% per month or the maximum legal rate in the jurisdiction where the business is located.
Furthermore, if the audit determines that the underpayment of Account Sales Fee, Administration Fees, Royalty Fees, and Insurance Program Fees exceeds 2%, the franchisee is responsible for covering the costs and expenses associated with a subsequent audit. This subsequent audit aims to verify that the franchisee is correctly reporting sales. These costs include the salaries of Buildingstars' representatives, travel expenses, room and board, and audit fees.
This policy incentivizes accurate reporting of gross sales by Buildingstars franchisees. Underreporting can lead to significant financial repercussions, including back payments of fees, interest charges, and the cost of multiple audits. The right to audit and the associated penalties are standard practices in franchising to ensure franchisors receive the correct royalty payments and to maintain the integrity of the franchise system.