What sales are excluded from the definition of Gross Sales when calculating fees for a Churchs Chicken franchise?
Churchs_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
"Gross Sales" includes, as stated in Section 3.D of the Franchise Agreement, all revenue from the sale of all services and products and all other income of every kind and nature (including stored value gift cards and gift certificates when redeemed but not when purchased) related to the Franchised Restaurant, whether such sales are evidenced by cash, check, credit, charge, account, barter or exchange.
Gross Sales includes, without limitation, monies or credit received from the sale of food and merchandise, from tangible property of every kind and nature, promotional or otherwise, and for services performed from or at the Franchised Restaurant, including, but not limited to, off-premises services such as catering and delivery, regardless of the method of collection (including cash registers, vending machines, payments to third-party delivery providers, or otherwise).
Gross Sales do not include (1) the sale of food or merchandise for which refunds have been made in good faith to customers, (2) the sale of used equipment not in the ordinary course of business, or (3) taxes imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to or absorbed in the selling price and is actually paid by a franchisee to the governmental authority.
Source: Item 6 — OTHER FEES (FDD pages 19–24)
What This Means (2025 FDD)
According to Churchs Chicken's 2025 Franchise Disclosure Document, Gross Sales, which is used to calculate royalty and advertising fees, does not include certain transactions. Specifically excluded from Gross Sales are (1) the sale of food or merchandise for which refunds have been made in good faith to customers, (2) the sale of used equipment not in the ordinary course of business, and (3) taxes imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to or absorbed in the selling price and is actually paid by a franchisee to the governmental authority.
For a prospective Churchs Chicken franchisee, this definition is important because it clarifies the base upon which the royalty and advertising fees are calculated. By excluding these specific items, the franchisee is not paying a percentage on sales that were refunded, onetime sales of equipment, or on sales taxes collected on behalf of the government. This can lead to a slightly lower royalty and advertising fee than if all revenue were included in Gross Sales.
It is important for franchisees to maintain accurate records of refunds, equipment sales, and sales tax collected to ensure accurate reporting of Gross Sales. This also ensures compliance with the Franchise Agreement and avoids potential disputes with Churchs Chicken regarding the calculation of fees. Understanding these exclusions can help a franchisee better manage their finances and predict their royalty and advertising fee obligations.