What triggers Chatime's right to conduct an audit of a franchisee's books of account?
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, Chatime has the right to audit a franchisee's books of account under specific circumstances. Chatime may initiate an audit if a franchisee fails to furnish required reports, supporting records, other information, or financial statements, or if these items are not provided on a timely basis.
Furthermore, Chatime can conduct an audit if an understatement of fees received from the franchisee is discovered during any audit or inspection and is determined to be greater than 2%. If either of these conditions is met, the franchisee may be responsible for reimbursing Chatime for the cost of the audit. This reimbursement covers expenses such as legal fees, accountant fees, and the travel and accommodation costs incurred by Chatime employees.
This clause ensures that Chatime can verify the accuracy of financial reporting and compliance with the franchise agreement. It also provides an incentive for franchisees to maintain accurate records and submit them promptly. The franchisee bears the cost of the audit if they are non-compliant or if significant underreporting is detected, which is a fairly standard practice in franchising to ensure accountability and protect the franchisor's revenue stream.