Does Gross Sales for Extreme Art Studio include proceeds from business interruption insurance?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
- 3.2.2 For purposes of this Franchise Agreement, "Gross Sales" means all revenue that you receive from operating the Franchised Business (including any modules), including, but not limited to, all amounts or other consideration that you receive, directly or indirectly, at or away
from the Extreme Art Studio Business, and in the form of cash, check, credit and debit card, barter exchange, trade credit, or other credit transactions, and including all proceeds from any business interruption insurance. For example, Gross Sales includes, without limitation, the following:
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, Gross Sales does include proceeds from business interruption insurance. Gross Sales is defined as all revenue received from operating the franchised business, including all amounts received directly or indirectly, in various forms such as cash, checks, credit/debit cards, and other credit transactions. This definition explicitly includes proceeds from any business interruption insurance.
For a prospective Extreme Art Studio franchisee, this means that the royalty fee, which is calculated as a percentage of Gross Sales, will be based on the total revenue, including any insurance proceeds received during periods of business interruption. The royalty fee is the greater of eight percent of Gross Sales or $500 per month. This is important for franchisees to consider when projecting revenue and calculating potential royalty payments, especially when assessing the financial impact of potential business disruptions.
Extreme Art Studio also requires franchisees to maintain business interruption insurance, covering actual losses sustained for 12 months or not less than 50% of annual Net Sales. This insurance requirement ensures that franchisees have a safety net in case of unforeseen events that disrupt their business operations. The inclusion of business interruption insurance proceeds in Gross Sales aligns with the franchisor's interest in ensuring that franchisees maintain adequate coverage and that all revenue sources are accounted for when calculating royalty fees.