Does the Burros Fries franchisor have the right to audit the franchisee?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
B. Franchisor's Right to Audit
We or our agents may enter the Franchisee's location to examine or audit Franchisee's business at any reasonable time without notice. We may examine, inspect or audit Franchisee's database and Business Records, which records will include, but will not be limited to: payroll records, ledgers, purchase agreements, sales reports, timecards, check stubs, bank deposits, bank statements, merchant account printouts, receipts, sales tax records and returns, insurance policies and other documents. We will bear the cost of the audit, provided however, if Franchisee fails to report as required or understates Gross Revenue by 2% or more for any reported time period, in which case Franchisee will pay the audit costs plus interest at 18% per annum (1.5% per month) for all understated Gross Revenues or the maximum rate allowed by the laws of the State in which Franchisee's business is located as specified in the Operations Manual. Franchisee will immediately pay us all sums owed. The foregoing remedies shall be in addition to any other remedies we may have pursuant to this Agreement and as provided at law and in equity.
In addition to the cost of the audit described above, Franchisee shall reimburse us for any and all costs and expenses relating to the inspection (including, without limitation, travel, lodging and wage expenses and reasonable accounting and legal costs), and, at our discretion, submit audited financial statements prepared, at Franchisee's expense, by an independent certified public accountant satisfactory to us. If an inspection discloses an understatement in any payment to us of two percent (2%) or more, twice within any two (2) year period, such act or omission shall constitute grounds for immediate termination of this Agreement, as set forth in Section 23.C. The foregoing remedies shall be in addition to any other remedies we may have pursuant to this Agreement and as provided at law and in equity.
Source: Item 22 — CONTRACTS (FDD page 53)
What This Means (2024 FDD)
According to Burros Fries's 2024 Franchise Disclosure Document, the franchisor or its agents have the right to audit a franchisee's business. Specifically, Burros Fries can enter the franchisee's location at any reasonable time without notice to examine or audit the business. This includes the right to inspect the franchisee's database and business records, such as payroll records, ledgers, purchase agreements, sales reports, timecards, check stubs, bank deposits, bank statements, merchant account printouts, receipts, sales tax records and returns, insurance policies, and other documents.
Typically, Burros Fries will bear the cost of the audit. However, if the franchisee fails to report as required or understates gross revenue by 2% or more for any reported time period, the franchisee will be responsible for paying the audit costs. In addition to covering the audit costs, the franchisee will also have to pay interest at a rate of 18% per annum (1.5% per month) for all understated gross revenues, or the maximum rate allowed by the laws of the state in which the franchisee's business is located, as specified in the Operations Manual. The franchisee is required to immediately pay all sums owed to Burros Fries.
Furthermore, the Burros Fries franchisee must reimburse the franchisor for all costs and expenses related to the inspection, including travel, lodging, wage expenses, and reasonable accounting and legal costs. At the franchisor's discretion, the franchisee may also be required to submit audited financial statements prepared by an independent certified public accountant, at the franchisee's expense. If an inspection reveals an understatement in any payment to the franchisor of 2% or more twice within any two-year period, it can be grounds for immediate termination of the Franchise Agreement.
These audit rights and financial penalties are in addition to any other remedies that Burros Fries may have under the Franchise Agreement or as provided by law and equity. This means that potential Burros Fries franchisees should ensure they maintain accurate and transparent financial records to avoid potential audit costs, interest payments, and the risk of termination.