How does the definition of Net Sales in Item 6 relate to the franchisee's obligation to maintain accurate records and report sales as outlined in Item 9 for Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
As used in this Item 19, "Net Sales" means all revenue derived from operating the Franchised Restaurant, including the aggregate of all sales amounts from food, beverages and other products sold and services rendered at the Premises or otherwise rendered in connection with the Franchised Restaurant, and all monies derived from sales at or away from the Franchised Restaurant, whether from cash, check, credit or debit card, barter exchange, trade credit, or other credit transactions, but: (1) excluding all federal, state or municipal sales, use or service taxes collected from customers and paid to the appropriate taxing authority; and (2) reduced by the amount of any documented refunds, credits, allowances, adjustments, promotional discounts, and charge-backs the Franchised Restaurant provides to customers in good faith.
11. RECORDS AND REPORTS.
11.01 Records.You agree to prepare and to maintain for 3 years complete and accurate books, records (including invoices and records relating to your advertising expenditures) and accounts (using our standard chart of accounts) for the Franchised Restaurant, copies of your sales tax returns and such portions of your state and federal income tax returns as relate to the Franchised Restaurant. All such books and records shall be kept at the Premises, unless we otherwise approve.
You must record all sales on electronic cash registers designated or approved by us at any time and from time to time. You may be required to use computers and computer-based cash registers which are fully compatible with our computer system and which include an information interface capability to communicate electronically with our computer system. We may require you to obtain, and at any time and from time to time update and/or upgrade, equipment, software and/or related services for record keeping and reporting purposes, including facilitating communications between your computers and computer-based cash registers and our computer system. We have the right to use the data we collect for any purpose, except that we shall not provide financial data to third parties, outside of our System or network of Restaurants, in such a form that readily identifies the Franchised Restaurant, unless we are required to do so by law, regulation, or order. If we require you to use proprietary software, you agree to execute and comply with such software license
agreements as we deem necessary to protect our interests, and you agree to pay such license, training, and maintenance fee as we deem reasonably appropriate.
12.02 Audits.We have the right at any time during business hours, and without prior notice to you, to inspect, copy and audit the books, records, tax returns and documents relating to the development, ownership, lease, occupancy or operation of the Franchised Restaurant. You must cooperate fully with our representatives and independent accountants conducting such audits. If any inspection or audit discloses an understatement of Net Sales, you must pay us, within 7 days after receipt of the audit report, the royalties and NPF contributions due on the amount of such understatement, plus interest (as provided in Section 6.04) from the date originally due until the date of payment. Further, if such inspection or audit is made necessary by your failure to furnish reports, records or information on a timely basis, or if we determine an understatement of Net Sales for the period of any audit to be greater
than 2%, you must reimburse us for the cost of such audit or inspection, including the charges of any attorneys and independent accountants and the travel expenses, room and board and compensation of our employees.
(l) fail to report accurately Net Sales or to make payment of any amounts due us or any of our Affiliates, and do not correct such failure within ten (10) days after written notice of such failure is delivered to you;
(m) understate the Franchised Restaurant's Net Sales three (3) times or more during the Term or by more than five percent (5%) on any one occasion;
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the definition of Net Sales directly impacts a franchisee's obligation to maintain accurate records and report sales. Item 19 defines "Net Sales" as all revenue derived from operating the Franchised Restaurant, including sales of food, beverages, and other products and services, whether from cash, check, credit/debit card, or other credit transactions. However, it excludes sales, use, or service taxes collected from customers and paid to the taxing authority, and it is reduced by documented refunds, credits, allowances, adjustments, promotional discounts, and charge-backs provided to customers in good faith. This definition is crucial because royalties are calculated based on Net Sales.
Item 9 outlines the franchisee's obligations, and while it doesn't explicitly detail the record-keeping requirements, it references Section 11 of the Franchise Agreement, which would cover the franchisee's obligations to keep records and submit reports. Item 22 further clarifies these obligations, stating that franchisees must prepare and maintain complete and accurate books, records, and accounts for 3 years, using Checkersrallys's standard chart of accounts. These records must include sales tax returns and relevant portions of income tax returns, kept at the premises unless otherwise approved. The franchisee must record all sales on electronic cash registers designated or approved by Checkersrallys and may be required to use compatible computers and software for electronic communication with Checkersrallys's computer system.
Checkersrallys has the right to inspect and audit these records at any time, without prior notice. If an audit reveals an understatement of Net Sales, the franchisee must pay the owed royalties and NPF contributions, plus interest. If the understatement exceeds 2% or is due to the franchisee's failure to provide timely reports, the franchisee must reimburse Checkersrallys for the audit costs. Furthermore, failure to accurately report Net Sales or make payments can lead to default under the Franchise Agreement.
In essence, the definition of Net Sales in Item 19 provides the foundation for calculating royalties and other fees, while the record-keeping and reporting obligations detailed in Item 22 (and referenced in Item 9) ensure that franchisees accurately track and report their sales according to that definition. This system allows Checkersrallys to verify sales figures and collect the appropriate royalties, while also providing a framework for franchisees to manage their financial records effectively. Prospective franchisees should pay close attention to these requirements to avoid penalties and maintain a positive relationship with Checkersrallys.