What is the estimated cost range for an audit of a Gokhale Method franchisee who underreports revenue?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
We have not audited any franchisees to date and do not know the cost that would be incurred by a franchisee who had under-reported revenue.
Under the franchise agreement, if a franchisee underreports revenue in an amount in excess of 2 percent, the franchisee must pay the costs of the audit, which include the fees of the auditors, travel, meals and lodging for them and any other costs incurred with obtaining and performing the audit.
Based upon our current knowledge of auditors' hourly rates, and depending upon the time required for the audit and whether travel to your place of business would be necessary, the audit cost could range from several hundred dollars to several thousand dollars.
Source: Item 6 — OTHER FEES (FDD pages 11–13)
What This Means (2024 FDD)
According to Gokhale Method's 2024 Franchise Disclosure Document, if a franchisee underreports revenue by more than 2%, they will be responsible for covering the costs of an audit. These costs encompass auditor fees, travel expenses, meals, lodging, and any other expenses incurred during the audit process.
The FDD indicates that Gokhale Method has not yet audited any franchisees, so they do not have precise figures on audit costs. However, based on their understanding of auditor hourly rates, the estimated cost for an audit could range from several hundred to several thousand dollars. The final cost will depend on the time required for the audit and whether travel to the franchisee's location is necessary.
This means that prospective Gokhale Method franchisees need to be meticulous in their revenue reporting. Underreporting by even a small margin (over 2%) can trigger an audit, leading to significant and potentially unexpected expenses. Franchisees should maintain accurate records and consult with a financial professional to ensure compliance and avoid the risk of an audit and associated costs.