What is the maximum potential cost of an audit for a Gokhale Method franchisee who has under-reported 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 are 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.
The FDD indicates that Gokhale Method has not yet audited any franchisees, so the franchisor does not have specific historical data on audit costs. However, based on their current understanding of auditor hourly rates, the document estimates that audit costs 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 a Gokhale Method franchisee who inaccurately reports revenue could face significant and unpredictable expenses. It is crucial for prospective franchisees to maintain accurate records and report revenue honestly to avoid triggering an audit and incurring these costs. The lack of a defined maximum cost creates uncertainty, making it essential to discuss potential audit scenarios and cost factors with Gokhale Method during the due diligence process.