What is the limit on employee discounts that can be deducted from Gross Revenue for a Cilantro Taco Grill franchise?
Cilantro_Taco_Grill Franchise · 2024 FDDAnswer from 2024 FDD Document
"Gross Revenue" includes all sales of every kind and nature at or from your Franchised Business location or made pursuant to the rights granted to you by the Franchise Agreement, without deduction for delivery costs or other write-offs. "Gross Revenue" does not include (i) any sales tax or similar taxes collected from customers and turned over to the governmental authority imposing the tax, (ii) properly documented refunds to customers, (iii) properly documented promotional discounts (i.e. coupons) and (iv) properly documented employee discounts (limited to 3% of Gross Revenue).
Source: Item 6 — OTHER FEES (FDD pages 12–18)
What This Means (2024 FDD)
According to Cilantro Taco Grill's 2024 Franchise Disclosure Document, gross revenue includes all sales from the franchised business, but it does allow for some deductions. Specifically, Cilantro Taco Grill franchisees can deduct properly documented employee discounts from their gross revenue. However, this deduction is limited to a maximum of 3% of the gross revenue.
This 3% limit on employee discounts has a direct impact on the royalty fees a franchisee pays. Royalty fees are calculated as a percentage of gross revenue, so a higher gross revenue results in higher royalty payments. By allowing franchisees to deduct up to 3% of gross revenue for employee discounts, Cilantro Taco Grill effectively reduces the base upon which royalty fees are calculated, potentially lowering the franchisee's royalty obligations.
It is important for prospective Cilantro Taco Grill franchisees to understand this limitation and to ensure that all employee discounts are properly documented. Failure to properly document these discounts could result in them not being deductible, which would increase the franchisee's gross revenue and, consequently, their royalty fees. Franchisees should consult with Cilantro Taco Grill and their own financial advisors to fully understand the implications of this policy and to implement appropriate accounting practices.