For a Christian Brothers Automotive franchise, are royalty expenses included in 'Total Expenses'?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
ne whether any royalty payment shall be made to Franchisor
from the Split Profits. No distribution or bonus from Split Profits shall be made to
Franchisee without the prior written approval of Franchisor. After the end of the Split
Profits Review Period, Franchisee must pay Franchisor a royalty fee each month calculated
as follows:
(a) 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
Franchise Agreement (Ver 04-14-2025)
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 (a) receipt by Franchisee, or (b) the effective date that is designated in
writing from Franchisor.
(c) The amount of royalty fee due each month will be estimated during the following
month, and due by the last day of the month in which the estimate is to be made.
The estimated amount will be based on the year-to-date financial activity for the
period then ended. A year end reconciliation or true up will be completed by
January 31 of each succeeding year and paid accordingly by February 1st of the year
during which the true up is completed. Any expense that is not an Approved
Expense Item (each an "Unapproved Expense Item"), or any distribution or a bonus
of Split Profits paid to Franchisee for its own benefit, will require an equal amount
of royalty fee payment to Franchisor, regardless of the Split Profits calculation,
payable at the same time as the payment of the Unapproved Expense Item.
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, royalty expenses are factored into the calculation of 'Split Profits,' which directly impacts the royalty fee. The royalty fee is based on 50% of the 'Split Profits,' which are defined as all revenues generated by the franchised business minus 'Approved Expense Items.'
'Approved Expense Items' are those calculated under Generally Accepted Accounting Principles (GAAP) and approved by Christian Brothers Automotive, as detailed in the Confidential Operations Manual. These items also include any subsequent written budget adjustments approved in writing by Christian Brothers Automotive. The Confidential Operations Manual may be amended, impacting the 'Approved Expense Items,' with changes effective upon the franchisee's receipt or the date designated in writing by Christian Brothers Automotive, whichever is later.
Any expense that is not an 'Approved Expense Item' is considered an 'Unapproved Expense Item.' If a franchisee pays for an 'Unapproved Expense Item' or distributes a bonus of Split Profits for their own benefit, they must make an equal royalty fee payment to Christian Brothers Automotive, regardless of the Split Profits calculation. This payment is due at the same time as the payment of the 'Unapproved Expense Item,' and failure to do so constitutes a material breach of the agreement. Therefore, whether royalty expenses are included in total expenses depends on whether they qualify as 'Approved Expense Items' under the agreement and the Confidential Operations Manual.