What is included in the Imputed Fees & Costs for Chop5 Salad Kitchen?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
: We prepared the FPR based on data we obtained from the POS system utilized by the Qualifying Restaurant. The data has not been audited.
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- Imputed Fees & Costs: The Qualifying Restaurant did not incur Imputed Fees & Costs during the Measuring Period. Imputed Fees & Costs include:
- Royalty fees (6% of monthly Gross Sales)
- Brand Fund Fees (1.5% of monthly Gross Sales)
- The difference between (a) the Local Advertising Commitment required by the Franchise Agreement (3% of monthly Gross Sales) and (b) the actual amount of Marketing Expenses incurred by the Qualifying Restaurant
This FPR discloses 2 sets of Adjusted Gross Profit figures, including: (1) "Adjusted Gross Profit" which is calculated based on actual expenses incurred by the Qualifying Restaurant and does not account for Imputed Fees & Costs; and (2) "Adjusted Gross Profit (Less Imputed Fees & Costs)" which is calculated in a manner that takes into account all Imputed Fees & Costs. Imputed Fees & Costs are discussed in more detail in Notes 3, 4 and 5 below.
- Imputed Royalty Fees: The Qualifying Restaurant did not pay royalty fees during the Measuring Period. The Franchise Agreement requires a royalty fee calculated as 6% of Gross Sales. For "Imputed Fees &
Costs", we included the total amount of royalty fees the Qualifying Restaurant would have incurred if it was a Franchised Restaurant.
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- Imputed Brand Fund Fees: The Qualifying Restaurant did not pay brand fund fees during the Measuring Period. The Franchise Agreement requires a brand fund fee calculated as: (a) 0.5% of Gross Sales for the 1st year of operation; (b) 1.0% of Gross Sales for the 2nd year of operation; and (c) 1.5% of Gross Sales for the remainder of the term. For purposes of imputing fees and costs, we applied the highest brand fund fee rate of 1.5% of Gross Sales based on the Qualifying Restaurant's opening date. For "Imputed Fees & Costs", we included the total amount of brand fund fees the Qualifying Restaurant would have incurred if it was a Franchised Restaurant.
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- Imputed LAC: Each month, franchisees must spend a minimum amount of money on local advertising and marketing equal to the Local Advertising Commitment (LAC). The LAC is: (a) 8% of Gross Sales for the 1st year of operation; and (b) 3% of Gross Sales for the remainder of the term. For purposes of imputing fees and costs, we applied the LAC rate of 3% of Gross Sales based on the Qualifying Restaurant's opening date. For "Imputed Fees & Costs", we included the additional Marketing Expenses the Qualifying Restaurant would have incurred if it was a Franchised Restaurant. The additional amount for the Qualifying Restaurant was $8,919, calculated as the difference between (a) $53,516 (i.e., 3% of Gross Sales) and (b) $44,597 (the amount of Marketing Expenses actually incurred by the Restaurant).
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 45–48)
What This Means (2024 FDD)
According to Chop5 Salad Kitchen's 2024 Franchise Disclosure Document, the Imputed Fees & Costs used in the financial performance representation include royalty fees, brand fund fees, and the Local Advertising Commitment (LAC). These imputed costs represent what a company-owned restaurant would have incurred if it were a franchised restaurant, minus any amounts the company-owned restaurant actually spent on these items. The financial performance representation includes an 'Adjusted Gross Profit (Less Imputed Fees & Costs)' figure, which is calculated by subtracting these imputed fees and costs from the Adjusted Gross Profit.
The royalty fee is calculated as 6% of Gross Sales. The brand fund fee is calculated on a tiered basis, reaching 1.5% of Gross Sales after the second year of operation. The Local Advertising Commitment (LAC) is 3% of Gross Sales after the first year. For the purpose of calculating imputed LAC, the FDD includes the additional marketing expenses the Qualifying Restaurant would have incurred if it was a Franchised Restaurant. In the case of the qualifying restaurant, the additional amount for LAC was $8,919, which is the difference between 3% of gross sales ($53,516) and the actual marketing expenses incurred by the restaurant ($44,597).
Prospective franchisees should understand that these imputed fees and costs are used to provide a more realistic view of potential profitability by reflecting expenses that a franchisee would typically incur but that a company-owned restaurant might not. By including these imputed costs, Chop5 Salad Kitchen aims to give potential franchisees a clearer picture of the financial obligations they will face as franchisees. However, it is important to remember that the financial performance representation is based on the performance of a single company-owned restaurant and that individual results may vary.