Are proceeds from the sale of gift certificates included in Ella Cafe's Gross Sales?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
Gross Sales also does not include proceeds from the sale of gift certificates or stored value cards (all proceeds from the sale of gift certificates and stored value cards belong to us), but it does include the redemption value of gift certificates and stored value cards at the time purchases are made. You are responsible for the accurate reporting of gift certificate and stored value card sales and the corresponding impact on Gross Sales. You have until 30 days after the end of our fiscal year to notify us of any errors you made in calculating Gross Sales as those errors relate to the reporting of gift certificate and stored value card sales.
Source: Item 6 — OTHER FEES (FDD pages 10–15)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, gross sales do not include proceeds from the sale of gift certificates or stored value cards. Instead, Ella Cafe retains all proceeds from the sale of these certificates and cards. However, the gross sales do include the redemption value of gift certificates and stored value cards when purchases are made.
As an Ella Cafe franchisee, you are responsible for accurately reporting gift certificate and stored value card sales and their impact on gross sales. You have a limited time frame of 30 days after the end of the fiscal year to notify Ella Cafe of any errors in calculating gross sales related to these certificates and cards.
This distinction is important because royalty fees are typically calculated based on a percentage of gross sales. By excluding the initial sale of gift certificates from gross sales, Ella Cafe ensures that franchisees are not paying royalties on money that has not yet been used to purchase goods or services. However, franchisees must still track and report these sales accurately to ensure proper calculation of gross sales when the certificates are redeemed.