Can debt service be included as an 'Approved Expense Item' for a Christian Brothers Automotive franchise?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
"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.
Source: Item 6 — OTHER FEES (FDD pages 17–25)
What This Means (2025 FDD)
According to the 2025 Christian Brothers Automotive Franchise Disclosure Document, debt service can be included as an 'Approved Expense Item'. The Royalty Fee that franchisees pay to Christian Brothers Automotive is based on 'Split Profits', which are revenues less '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, along with any written budget adjustments approved by Christian Brothers Automotive. The FDD specifies that 'Approved Expense Items include approved expenses, debt service and/or other capital expenditures, which are approved in advance.'
This means that a Christian Brothers Automotive franchisee can potentially reduce their royalty payments by including debt service in their 'Approved Expense Items', provided that these expenses are pre-approved by Christian Brothers Automotive and adhere to GAAP. Franchisees should carefully review the Confidential Operations Manual and seek written approval for all debt service and capital expenditures to ensure they qualify as 'Approved Expense Items'.