Does Ella Cafe have the right to audit a franchisee's records?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
o generally accepted accounting principles and which accurately reflect the Coffee House's financial information for the applicable Accounting Periods.
Franchisor may require that Franchisee submit the profit and loss statements in a standardized format that Franchisor provides to all of our franchisees. Franchisee also must provide Franchisor such other reports, computer back-up, and other information that Franchisor may reasonably request.
- 10.7. Audit of Franchisee Records. Franchisor or its designated agent has the right to audit, examine, and copy Franchisee's books, records, accounts, and business tax returns at any time. If an inspection or audit reveals underpayment of amounts owed to Franchisor, Franchisee must immediately pay the understated amount with interest as provided in Section 4.8.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, Ella Cafe retains the right to audit a franchisee's financial records. Specifically, Ella Cafe or its designated agent can audit, examine, and copy a franchisee's books, records, accounts, and business tax returns at any time.
If an audit reveals an underpayment of amounts owed to Ella Cafe, the franchisee must immediately pay the understated amount with interest. Furthermore, if the audit or inspection reveals an understatement of Gross Sales by 3% or more for any Accounting Period, the franchisee must reimburse Ella Cafe for all costs and expenses incurred in connection with the audit or inspection. These costs include travel, lodging, wage expenses, and attorneys' and accountants' fees.
In addition to the formal audit rights, Ella Cafe also has the right to enter the premises of the business during normal business hours to conduct inspections. These inspections may include any type of audit or review necessary to evaluate a franchisee's compliance with all required payments, standards, specifications, or procedures. This allows Ella Cafe to continuously monitor the financial health and operational compliance of its franchises.