What is the minimum 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 will be responsible for covering the costs of an audit. These costs encompass auditor fees, travel expenses, including meals and lodging, and any other expenses incurred during the audit process. The FDD specifies that the exact cost can vary significantly, potentially ranging from several hundred to several thousand dollars, depending on the duration of the audit and whether travel to the franchisee's location is necessary.
While the FDD does not provide a precise minimum cost, it indicates that the audit expenses could start in the "several hundred dollars" range. This suggests that even a relatively straightforward audit could incur costs for the franchisee. The final cost will depend on factors such as the complexity of the audit, the auditor's hourly rates, and the distance the auditor needs to travel.
Prospective Gokhale Method franchisees should be aware of this potential financial burden if they underreport revenue. It is crucial to maintain accurate records and report revenue correctly to avoid triggering an audit and incurring these expenses. Franchisees should also clarify with Gokhale Method what specific criteria and procedures are used to determine the scope and cost of an audit in the event of underreported revenue.