What is the Gross Sales understatement threshold that triggers the Bumper Man franchisee paying for the audit?
Bumper_Man Franchise · 2025 FDDAnswer from 2025 FDD Document
Any audit, examination, or inspection will be at Franchisor's cost and expense unless: (a) Franchisor is conducting the audit, examination, or inspection due to Franchisee's failure to submit reports; or (b) the reports submitted by Franchisee for the Reporting Period show (i) an understatement of Gross Sales by 1.25% or more, (ii) an underpayment of Continuing Service Fee, and/or (iii) Franchisee's failure to report its performance of Designated Services (and thus for which Non-Reported Designated Services Fees are owed to Franchisor), in which cases all reasonable and necessary costs and expenses related to such examination will be paid by Franchisee (including, without limitation, reasonable accounting and attorneys' fees). Franchisee will immediately pay Franchisor upon demand any deficiency in the Continuing Service Fee and all Non-Reported Designated Services Fees, plus late fees as specified in Section 4. These remedies will be in addition to any other remedies Franchisor may have at law or in equity.
Source: Item 23 — RECEIPTS (FDD pages 45–180)
What This Means (2025 FDD)
According to Bumper Man's 2025 Franchise Disclosure Document, a franchisee may be responsible for the costs of an audit if they understate their Gross Sales by a certain percentage. Specifically, if the reports submitted by the franchisee for the Reporting Period show an understatement of Gross Sales by 1.25% or more, the franchisee will be responsible for paying all reasonable and necessary costs and expenses related to the audit. This includes accounting and attorneys' fees.
This provision is significant for prospective Bumper Man franchisees because it highlights the importance of accurate financial reporting. Underreporting sales, even by a seemingly small percentage, can lead to substantial financial penalties in the form of audit costs. Franchisees should ensure they have systems in place to track and report Gross Sales accurately to avoid triggering an audit and incurring these expenses.
In addition to covering the audit costs, the franchisee will also be required to immediately pay Bumper Man any deficiency in the Continuing Service Fee and all Non-Reported Designated Services Fees, plus late fees as specified in Section 4. These financial repercussions underscore the need for franchisees to maintain meticulous records and adhere to the reporting requirements outlined in the franchise agreement.