Under what conditions can Cinnaholic conduct an audit of a franchisee's records?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
6.3. Audit. Franchisee shall allow representatives of Franchisor to inspect Franchisee's books and records at all reasonable times in order to verify Gross Sales including delivery service income, that Franchisee reports as well as to verify Franchisee's advertising expenditures required by Section 11.3 below and any other matters relating to this Agreement and the operation of the Bakery. Franchisor may require Franchisee to submit to Franchisor, or Franchisor's representatives, copies of Franchisee's books and records for any offsite inspection that Franchisor or Franchisor's representatives conduct to audit the Bakery. If an inspection reveals that Gross Sales of Franchisee have been understated, Franchisee shall immediately pay to Franchisor the amount of Royalty Fees and Advertising Fees overdue, unreported or understated, together with interest as prescribed in Section 5.4 above. All inspections shall be at the expense of Franchisor; provided, however, if the inspection results in a discovery of a discrepancy in the Gross Sales reported by Franchisee of 5% or more, then Franchisee shall pay or reimburse Franchisor for any and all reasonable expenses incurred by Franchisor in connection with the inspection, including, but not limited to, attorneys' and accounting fees and travel expenses, room and board and compensation of Franchisor's employees, as well as interest on the amounts owed at the highest legal rates allowed from the date payment was due.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, Cinnaholic can inspect a franchisee's financial records at reasonable times to verify gross sales, including delivery service income, and advertising expenditures. Cinnaholic may also require franchisees to submit copies of their books and records for offsite inspection.
The franchisee is responsible for paying any overdue royalty and advertising fees, plus interest, if an audit reveals understated gross sales. While Cinnaholic bears the cost of most inspections, the franchisee is responsible for covering all reasonable expenses associated with the inspection if a discrepancy of 5% or more in reported gross sales is discovered. These expenses can include attorney and accounting fees, travel, lodging, and employee compensation for Cinnaholic.
This audit clause is fairly standard in franchising, allowing Cinnaholic to ensure accurate reporting and compliance with the franchise agreement. A prospective Cinnaholic franchisee should maintain meticulous records and report sales accurately to avoid potential audit-related expenses and penalties.