What revenues are excluded from the definition of 'Gross Sales' for Hck Hot Chicken franchisees?
Hck_Hot_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
Gross Sales excludes: (i) sales taxes, value added or other tax, excise or duty charged to customers, based on sales at or from your Restaurant; (ii) tips, gratuities or service charges paid directly by customers to your employees or paid to you and promptly turned over to your employees in lieu of direct tips or gratuities; and (iii) proceeds from isolated sales of equipment and trade fixtures that are not part of your products and services offered for resale at your Restaurant nor having any material effect upon the ongoing operation of your Restaurant.
For items sold using coupons or other discounts (which we must approve), Gross Sales also excludes the amount discounted from the purchase price of such item and from sales of prepaid gift cards and certificates, but franchisees must pay Continuing Royalties and Brand Fund Contributions on sales from the redemption of gift cards and/or certificates at their Restaurant(s).
Source: Item 6 — OTHER FEES (FDD pages 13–19)
What This Means (2025 FDD)
According to Hck Hot Chicken's 2025 Franchise Disclosure Document, 'Gross Sales' is a critical figure, as several fees are calculated as a percentage of this amount. The document specifies certain exclusions from the calculation of Gross Sales. These exclusions directly impact the amount on which franchisees pay royalties and other fees.
Specifically, Gross Sales for Hck Hot Chicken excludes (i) sales taxes, value added or other tax, excise or duty charged to customers, (ii) tips, gratuities, or service charges paid directly to employees, and (iii) proceeds from isolated sales of equipment and trade fixtures not typically part of the restaurant's offerings. These exclusions ensure that franchisees are not paying royalties on revenues that are pass-through (like sales tax) or are not part of the core business.
Additionally, the Gross Sales calculation excludes the amount discounted from the purchase price of items sold using approved coupons or other discounts. It also excludes sales of prepaid gift cards and certificates. However, franchisees must still pay Continuing Royalties and Brand Fund Contributions on sales from the redemption of gift cards and/or certificates at their Restaurant(s). This means that while the initial sale of a gift card isn't included in gross sales, the revenue generated when that gift card is used is subject to royalty and brand fund contributions.
Understanding these exclusions is important for prospective Hck Hot Chicken franchisees to accurately calculate their Gross Sales and, consequently, their royalty and brand fund contribution obligations. Franchisees should ensure they have accounting systems in place to properly track these exclusions and redemptions to avoid any discrepancies or underpayment of fees.