What penalty fee does Cool Binz charge if an understatement of Royalty is greater than 3%?
Cool_Binz Franchise · 2025 FDDAnswer from 2025 FDD Document
Furthermore, if we conduct an inspection or audit due to your failure to (a) furnish reports, supporting records, or other information as required, (b) furnish these items on a timely basis, (c) to record all Customer payments in the COOL BINZ Software within 48 hours of their receipt, or (d) use the COOL BINZ/Required Software for scheduling or invoicing, or we discover that an understatement of Royalty is greater than 3% for any period reviewed, you must reimburse us for the cost of the inspection and/or audit, including without limitation, the charges of attorneys and independent accountants, the travel, room and board expenses, and compensation of our employees. Further, if an understatement of the Royalty is greater than 3%, you also must pay us an additional penalty fee equal to 10% of the total amount of the understated Gross Sales.
Source: Item 23 — RECEIPTS (FDD pages 63–238)
What This Means (2025 FDD)
According to Cool Binz's 2025 Franchise Disclosure Document, if an audit reveals that a franchisee has understated their royalty payments by more than 3%, Cool Binz imposes a penalty. This penalty consists of two parts. First, the franchisee must reimburse Cool Binz for the cost of the inspection or audit itself. This reimbursement covers all expenses Cool Binz incurs, including attorney and accountant fees, travel, lodging, and compensation for Cool Binz employees involved in the audit.
In addition to covering the audit costs, Cool Binz also charges a penalty fee. This fee is equal to 10% of the total amount of the understated gross sales. This is on top of paying the correct royalty amount that was originally underpaid.
This policy underscores the importance of accurate financial reporting for Cool Binz franchisees. Franchisees should ensure they meticulously track and report their gross sales to avoid triggering an audit and the associated financial penalties. The combined cost of the audit reimbursement and the 10% penalty on understated sales could represent a significant financial burden for a franchisee.