What costs are included in the reimbursement to Chatime for 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, if a franchisee fails to furnish required reports or if an audit reveals an understatement of fees exceeding 2%, the franchisee is responsible for reimbursing Chatime for the inspection or audit costs. These costs include legal fees, accountant fees, and the travel and accommodation expenses applicable per day for Chatime employees.
This means that a Chatime franchisee could face significant expenses beyond the initial franchise fee and ongoing royalties if they fail to maintain accurate records or submit them on time. The 2% threshold for fee understatement is relatively low, so even minor accounting errors could trigger the reimbursement requirement.
Prospective franchisees should ensure they have robust accounting systems and processes in place to minimize the risk of errors or delays in reporting. They should also clarify with Chatime what specific expenses are considered 'travel and accommodation expenses applicable per day for employees' to understand the potential financial burden of an audit. This could include airfare, hotel costs, meals, and other incidentals.
It is important to note that these remedies are in addition to any other rights Chatime has under the franchise agreement or applicable law. This highlights the importance of compliance with all reporting requirements to avoid triggering an audit and incurring these additional costs.