When the Chatime Franchisor operates and manages the Franchise, what expenses, in addition to the management fee, can the Franchisor deduct from the net income?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
- (2) Franchisor must account to Developer for all net income received by Franchisor while operating and managing the Development Business less a reasonable management fee prescribed by Franchisor for operating and managing the Development Business and any travelling, accommodation or other expenses in relation to such operation and management. Developer must bear any losses incurred during Franchisor's operation and management of the Development Business and pay or reimburse such losses to Franchisor upon demand.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, when Chatime operates and manages a franchise, they will deduct a reasonable management fee from the net income received. In addition to this fee, Chatime will also deduct any traveling, accommodation, or other expenses related to the operation and management of the franchise.
Furthermore, the franchisee is responsible for any losses incurred during Chatime's period of operation and management. The franchisee must reimburse Chatime for these losses upon demand. This means that if the store performs poorly under Chatime's management, the franchisee is still liable for the financial shortfall.
This arrangement carries significant financial implications for the franchisee. While Chatime is managing the business, the franchisee bears the risk of losses and must cover Chatime's expenses, potentially reducing or eliminating any profit during that period. It is important for prospective franchisees to understand the conditions under which Chatime might take over management and to assess their financial capacity to absorb potential losses and additional expenses.