Under what circumstances will a Chicken Guy franchisee be required to pay for audit and inspection costs?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
| TYPE OF FEE(1) | AMOUNT | DUE DATE | REMARKS |
|---|---|---|---|
| Audit and Inspection Costs | Deficiency in royalty fees and advertising contributions, plus interest. | Within ten days after receipt of the audit or inspection report | The interest rate is the same as the interest rate for late payments. If an inspection or audit is made necessary by your failure to furnish reports or supporting records, or to furnish such reports, records or information on a timely basis, or if there is an understatement of Gross Sales of greater than 2%, in addition to the understated royalty fees and advertising contributions, you also must pay the reasonable costs of the audit or inspection. |
Source: Item 6 — OTHER FEES (FDD pages 12–16)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, franchisees may incur audit and inspection costs under specific circumstances. These costs, along with interest, become due within ten days after receiving the audit or inspection report. The interest rate applied will be the same as the rate for late payments.
Specifically, a Chicken Guy franchisee will be responsible for covering the costs of an audit or inspection if the need for such an audit or inspection arises from their failure to furnish reports or supporting records, or from not providing these documents or information promptly. Additionally, if an audit or inspection reveals an understatement of Gross Sales exceeding 2%, the franchisee must pay for the audit or inspection. This is in addition to covering the understated royalty fees and advertising contributions that the audit reveals.
This policy is fairly standard in franchising, as franchisors need to ensure accurate reporting to calculate royalties and advertising contributions correctly. Franchisees should maintain meticulous records and ensure timely submission to avoid triggering an audit and the associated costs. The 2% threshold for understatement of Gross Sales is a critical benchmark; exceeding this can lead to significant financial repercussions beyond just the unpaid royalties and advertising fees.