What constitutes an understatement of Net Sales that could lead to default for a Checkersrallys franchisee?

According to Checkersrallys's 2025 Franchise Disclosure Document, a franchisee may face default if they understate their restaurant's Net Sales under certain conditions. Specifically, Checkersrallys can declare a default if a franchisee understates Net Sales three or more times during the term of the franchise agreement. Alternatively, a single instance of underreporting Net Sales by more than five percent (5%) also constitutes grounds for default.

This provision is significant because it directly impacts the financial obligations of the franchisee. Net Sales typically form the basis for calculating royalties and other fees owed to Checkersrallys. Underreporting sales can lead to a franchisee paying less than what is contractually required, which Checkersrallys views as a serious breach of the franchise agreement. The potential consequences of default can include termination of the franchise agreement, loss of the franchise, and potential legal action by Checkersrallys to recover unpaid royalties and fees.

It is important for prospective Checkersrallys franchisees to maintain accurate and transparent financial records. Franchisees should implement robust accounting practices and regularly review their sales data to ensure compliance with the reporting requirements outlined in the franchise agreement. Franchisees should also ensure that they have sufficient capital to cover any potential discrepancies identified during audits, including the payment of understated royalties, interest, and audit costs.

Many franchise agreements contain similar clauses regarding accurate sales reporting, as the franchise model relies on the franchisor receiving a percentage of revenue. Franchisees should be aware that Checkersrallys retains the right to audit the franchisee's financial records to verify sales figures. Franchisees must cooperate fully with Checkersrallys's representatives and independent accountants during such audits. Failure to do so can also result in penalties or default.