What is the interest rate charged on unpaid audit expenses for a Burros Fries franchise?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
| Audit Expenses | Cost of Audit Fees plus interest at 18% per annum (1.5% per month) up to the maximum interest rate allowed by law. | Ten days after receipt of audit report. | Payable to us only if you understate Gross Revenues by 2% or more. We expect the cost to be between $3,500- $6,500 unless your financial records are not well kept. |
Source: Item 6 — OTHER FEES (FDD pages 12–16)
What This Means (2024 FDD)
According to Burros Fries's 2024 Franchise Disclosure Document, if a franchisee understates gross revenues by 2% or more, they may be subject to an audit. If audit expenses are incurred, Burros Fries charges interest on unpaid audit fees at a rate of 18% per annum, which is equivalent to 1.5% per month. However, the interest rate will not exceed the maximum interest rate allowed by law.
The cost of the audit is estimated to be between $3,500 and $6,500, but this range can increase if the franchisee's financial records are not well-maintained. Franchisees have ten days after receiving the audit report to pay these expenses.
It is common practice in franchising for franchisors to conduct audits to ensure accurate reporting of gross revenues, as these revenues often determine royalty payments. The interest charged on unpaid audit expenses serves as an incentive for franchisees to maintain accurate records and promptly address any discrepancies identified during an audit. Prospective Burros Fries franchisees should be aware of these potential costs and ensure they have systems in place to accurately track and report their gross revenues.