For a Christian Brothers Automotive franchise, are amortization and depreciation included in 'Total Expenses'?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
From the date of this Agreement until the end of the Initial Term and each subsequent term thereafter, an amount equal to fifty percent (50%) of the "Split Profits" (as defined below).
(b) "Split Profits" shall mean (x) 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 (y) the Approved Expense Items (as defined below). "Approved Expense Items" shall mean (i) those expense items calculated under Generally Accepted Accounting Principles (GAAP) and approved by Franchisor as set forth in the Confidential Operations Manual, (ii) all subsequent written budget adjustments that are approved in writing by Franchisor, and (iii) all adjustments
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, Christian Brothers Automotive's franchise agreement outlines how "Split Profits" are calculated, which affects the royalty fees franchisees pay. The document defines "Split Profits" as all revenues generated by the franchised business minus "Approved Expense Items." These "Approved Expense Items" are calculated under Generally Accepted Accounting Principles (GAAP) and must be approved by Christian Brothers Automotive, as detailed in the Confidential Operations Manual.
Because the "Approved Expense Items" must align with GAAP, standard accounting practices would dictate that typical expenses like amortization and depreciation are included when calculating a business's profit. However, the FDD excerpt specifies that these expenses must also be approved by Christian Brothers Automotive to be considered an "Approved Expense Item" in the "Split Profits" calculation.
Therefore, while amortization and depreciation are generally included in expense calculations under GAAP, a prospective Christian Brothers Automotive franchisee needs to confirm with the franchisor whether these specific expenses are pre-approved or if they require individual approval to be included in the "Split Profits" calculation, which ultimately affects the franchisee's royalty payments.