Can capital expenditures be included as an 'Approved Expense Item' for a Christian Brothers Automotive franchise?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
You will pay a "Royalty Fee" of 50% of monthly "Split Profits" (as defined below) to CBAC each month during the initial term of your Franchise Agreement and during the remainder of all terms of your Franchise Agreement, including all extension and renewal periods. This payment is due on the last day of each succeeding month, and is based on the "Split Profits" estimated for the preceding month. Estimated payments will be due monthly and a final reconciliation will be calculated at each year end for a "true up" on the annual "Split Profits". "Split Profits" shall mean all monies, revenues and items of value from all sources generated in connection with and/or in any way related to the Franchised Business minus the Approved Expense Items. "Approved Expense Items" shall mean (i) those expense items calculated under Generally
Accepted Accounting Principles (GAAP) and approved by us as set forth in the Confidential Operations Manual, (ii) all subsequent written budget adjustments that are approved in writing by us, and (iii) all adjustments defined in the Confidential Operations Manual. Amendments to the Confidential Operations Manual that impact the Approved Expense Items will be effective upon the later of (i) receipt by you, or (ii) the effective date that is designated in writing from us. Approved Expense Items include approved expenses, debt service and/or other capital expenditures, which are approved in advance. Any salary or wage that your business pays to you and/or your spouse, as an employee of the franchise, is contingent upon the business making enough profit to pay such salary or wage and is not a guarantee of payment by CBAC. CBAC agrees to allow up to $60,000 combined salary or wage to you or split between you, your spouse and any of your household dependents to be an Approved Expense Item. Any expense that is not an Approved Expense Item (each an "Unapproved Expense Item"), will require an equal amount of royalty fee to CBAC, regardless of the Split Profits calculation, payable at the same time as the payment of the Unapproved Expense Item.
Source: Item 6 — OTHER FEES (FDD pages 17–25)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, capital expenditures can be included as an 'Approved Expense Item.' The document defines 'Split Profits' as all revenues generated by the franchised business minus 'Approved Expense Items.'
'Approved Expense Items' are defined as those calculated under Generally Accepted Accounting Principles (GAAP) and approved by Christian Brothers Automotive, as detailed in the Confidential Operations Manual, including any written budget adjustments approved by them. These items also encompass adjustments defined in the Confidential Operations Manual. Amendments to the manual impacting 'Approved Expense Items' become effective upon the franchisee's receipt or the date designated in writing by Christian Brothers Automotive, whichever is later.
Importantly, the definition of 'Approved Expense Items' explicitly includes 'approved expenses, debt service and/or other capital expenditures, which are approved in advance.' This means that if a Christian Brothers Automotive franchisee seeks to include capital expenditures as an approved expense, they must obtain advance approval from Christian Brothers Automotive. Any expense that is not pre-approved will be considered an 'Unapproved Expense Item', which will require an equal amount of royalty fee to Christian Brothers Automotive, regardless of the Split Profits calculation.