What are the potential consequences for a Burros Fries franchisee if they understate gross revenues by 2% or more, considering the audit expenses described in Item 6?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
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.
What This Means (2024 FDD)
According to the 2024 Burros Fries Franchise Disclosure Document, if a franchisee understates gross revenues by 2% or more for any reported time period, Burros Fries has specific remedies. While Item 6 details the fees a franchisee must pay, Item 22 outlines the consequences related to underreporting revenue.
Specifically, the franchisee will be responsible for paying the costs of the audit conducted by Burros Fries. In addition to covering the audit costs, the franchisee must pay interest on all understated gross revenues. This interest is calculated at a rate of 18% per annum, which is equivalent to 1.5% per month, or the maximum rate allowed by the laws of the state where 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 franchisee must reimburse Burros Fries for all costs and expenses related to the inspection, including travel, lodging, wage expenses, and reasonable accounting and legal costs. At Burros Fries'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 Burros Fries of 2% or more twice within any two-year period, it constitutes grounds for immediate termination of the Franchise Agreement.
These remedies 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 underreporting revenues can lead to significant financial penalties and, in repeated instances, termination of the franchise agreement.