What costs are included when a Chatime franchisee must reimburse the franchisor for the cost of an inspection or audit?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
(5) If in Franchisor's opinion, an inspection or audit is required because of the failure of Franchisee to furnish reports, supporting records, other information or financial statements as required, or to furnish such reports, records, information or financial statements on a timely basis, or if an understatement of fees received by Franchisee for the period of any audit is determined by any such audit or inspection to be greater than 2%, Franchisee must reimburse Franchisor for the cost of such inspection or audit, including, without limitation, legal fees and accountants fees, and the travel and accommodation expenses applicable per day for employees of Franchisor.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, a franchisee may be required to reimburse Chatime for the cost of an inspection or audit under specific circumstances. This reimbursement is triggered if the inspection or audit is deemed necessary due to the franchisee's failure to provide required reports, records, information, or financial statements in a timely manner. Reimbursement is also required if an audit or inspection reveals that the franchisee understated fees received by more than 2% for the audited period.
The costs that the Chatime franchisee must cover include legal fees, accountant fees, and the travel and accommodation expenses applicable per day for Chatime employees. This means that if Chatime believes an audit is necessary due to the franchisee's negligence or a significant understatement of fees, the franchisee will be responsible for not only the unpaid fees and interest but also the expenses Chatime incurs to conduct the audit.
This provision serves as a financial deterrent against non-compliance and inaccurate reporting by Chatime franchisees. It ensures that Chatime can recover expenses associated with enforcing compliance and verifying financial information. Prospective franchisees should be aware of these potential costs and ensure they maintain accurate records and adhere to reporting requirements to avoid triggering such reimbursements. This is not uncommon in franchising, as franchisors need to ensure brand standards and accurate financial reporting across all locations.