How are payments applied according to the Cinnaholic franchise agreement?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
ices are made by ground transportation. Subject to the foregoing maximum mileage restriction, Franchisee may provide catering and delivery services in the exclusive territories of other CINNAHOLIC® franchisees, and other CINNAHOLIC® franchisees may provide the same services in the Franchise Territory.
4. INITIAL FRANCHISE FEE
Upon the execution of this Agreement, Franchisee shall pay to Franchisor an Initial Franchise Fee in an amount set forth on Exhibit A (the "Franchise Fee"). In the event the Development Agreement requires the payment of a development fee by Franchisee to Franchisor, there shall be credited toward the payment of the Franchise Fee all or a portion of those development fees in the manner and to the extent provided for in the Development Agreement. Franchisee acknowledges and agrees that the Franchise Fee is paid as consideration for Franchisor granting Franchisee the right to develop, open and operate the Bakery using the Marks and the CINNAHOLIC® System and that the Franchise Fee is fully earned by Franchisor at the time this Agreement is executed, and the Franchise Fee shall not be refundable for any reason.
5. ROYALTY FEE; METHOD OF PAYMENT; LATE PAYMENT
- 5.1. Royalty Fee. In addition to all other amounts required to be paid hereunder, during the term hereof, Franchisee agrees to pay to Franchisor for the rights granted hereunder a royalty fee equal to 5% of the Gross Sales (as such term is hereinafter defined) of the Bakery (the "Royalty Fee"). Payment of the Royalty Fee shall be made on or before Tuesday of each week for Gross Sales of the Bakery for the preceding week. Franchisee acknowledges and agrees that in the event Franchisee is in default of this Agreement for failure to comply with any of the operational standards or specifications set forth in the Operations Manual (as defined in Section 7 of this Agreement) or failure to adhere to the obligations set forth in Section 9 of this Agreement, Franchisor may increase the Royalty Fee to 10% of Gross Sales and impose a surcharge of $250 per week or pro rata portion of the week until such time as the defaults are cured.
- 5.2. Definition of Gross Sales. Gross Sales shall mean the amount of sales of all products and services sold in, on, about or from the Bakery, together with any other revenues derived from the operation of the Bakery, whether by Franchisee or by any other person, whether or not in accordance with the terms hereof, and whether for cash or on a charge, credit, barter or time basis, including, but not limited to, all such sales and services (i) where orders originate and/or are accepted by Franchisee in the Bakery but delivery or performance thereof is made from or at any place other than the Bakery or (ii) pursuant to telephone or other similar orders received or filled at or in the Bakery. For purposes of determining the Royalty Fee and Advertising Fee, there shall be deducted from Gross Sales: (a) the amount of refunds, allowances or discounts to customers (including coupon sales) up to 10% of the Gross Sales, provided the related sales have previously been included in Gross Sales;
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to the 2025 Cinnaholic Franchise Disclosure Document, the application of payments can vary based on specific circumstances and the state in which the franchise operates. Generally, upon signing the Franchise Agreement, the franchisee must pay Cinnaholic an initial franchise fee, the amount of which is detailed in Exhibit A. This fee compensates Cinnaholic for granting the franchisee the right to develop, open, and operate their bakery using Cinnaholic's trademarks and system. This initial franchise fee is considered fully earned by Cinnaholic upon the agreement's execution and is non-refundable.
However, there are exceptions to this general rule. For franchisees operating in Virginia or Maryland, the payment of the initial franchise fee and other initial payments may be deferred until Cinnaholic has fulfilled its pre-opening obligations under the franchise agreement. This deferral is mandated by the Virginia State Corporation Commission's Division of Securities and Retail Franchising and the Maryland Securities Commissioner due to Cinnaholic's financial condition. Similarly, in Minnesota, the Commissioner of Commerce may require the deferral of initial franchise fees until Cinnaholic has met all initial obligations and the franchisee has commenced business operations.
Furthermore, the Cinnaholic franchise agreement stipulates that franchisees must maintain a good credit standing by making prompt payments for supplies, equipment, and other items, whether purchased from Cinnaholic or other suppliers. Failure to do so, or defaulting on payments due under any agreement related to the bakery's operation, can negatively impact the franchisee's credit rating and standing, which is considered detrimental to Cinnaholic and other franchisees. Franchisees are obligated to notify Cinnaholic immediately if they become more than 90 days delinquent in any of these payments. These measures ensure the financial stability and operational integrity of the Cinnaholic franchise system.