If a Burger King franchisee understates gross sales by more than 2% on a financial statement, what are the consequences regarding termination of the franchise agreement?
Burger_King Franchise · 2025 FDDAnswer from 2025 FDD Document
In the event the audit discloses an understatement of Gross Sales for any period or periods, Franchisee shall, within 15 days after receipt of the audit report, pay BKC the Royalty and Advertising Contribution (including any ISP fee) in the amount of the understatement plus the late charge identified in Section 9.D. of this Agreement from the date such payments were originally due. Additionally, in the event the audit discloses an understatement of Gross Sales which exceeds two percent (2%) for any period or periods, Franchisee shall, within fifteen (15) days after the receipt of the audit report, reimburse BKC for all costs of the audit including travel, lodging and wages, reasonably incurred.
Source: Item 23 — RECEIPTS (FDD pages 127–995)
What This Means (2025 FDD)
According to Burger King's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated gross sales by more than 2% for any period, the franchisee must take several actions. Within 15 days of receiving the audit report, the franchisee is required to pay Burger King the Royalty and Advertising Contribution (including any ISP fee) on the understated amount, along with a late charge as detailed in Section 9.D of the agreement, calculated from the original due date of the payments. Additionally, the franchisee must reimburse Burger King for all costs associated with the audit, including travel, lodging, and wages, reasonably incurred by Burger King.
While the FDD excerpt specifies the financial repercussions of understating gross sales, it does not explicitly state that understating gross sales by more than 2% will result in the termination of the franchise agreement. However, the document does state that submitting any form or report containing false or misleading material statements or omitting any material fact can result in termination of the agreement, effective immediately upon notice and without an opportunity to cure the issue.
Prospective Burger King franchisees should be aware of these financial and potential termination consequences related to accurate reporting of gross sales. It is crucial to maintain meticulous records and ensure the accuracy of all financial submissions to Burger King. Franchisees should seek clarification from Burger King regarding the specific circumstances under which understatement of gross sales, especially beyond the 2% threshold, could lead to termination, and whether this is considered a 'false or misleading statement' as described in the FDD.