Under what condition does the Gokhale Method franchise require payment of Audit Expenses?
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, a franchisee may be required to cover the costs of an audit if they have underreported revenue by more than 2%. These audit expenses can include auditor fees, travel, meals, lodging, and any other costs associated with conducting the audit. The FDD indicates that Gokhale Method has not yet audited any franchisees.
The cost of such an audit can vary significantly, potentially ranging from several hundred to several thousand dollars, depending on the complexity and scope of the audit, as well as whether travel to the franchisee's location is necessary. This range reflects the potential variability in auditor's hourly rates and the time required to complete the audit.
This provision serves as a financial safeguard for Gokhale Method, ensuring accurate royalty payments and discouraging underreporting of revenue. For a prospective franchisee, it highlights the importance of maintaining accurate and transparent financial records. Franchisees should implement robust accounting practices to minimize the risk of unintentional errors or discrepancies that could trigger an audit and associated expenses. It is also important to note that the audit expenses are only incurred if the underreporting exceeds the 2% threshold.