What happens if a Kidokinetics franchisee's Gross Sales Report is understated by more than 3%?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
16.2.2. falsifies any report required to be furnished Franchisor hereunder;
16.2.6. understates Gross Sales by 5% at any time, or understates Gross Sales by any amount on three occasions or more, whether or not cured on any or all of those occasions;
The total amount you contribute is referred to herein as the ("Royalty"). "Gross Sales" means the revenues you receive from the sales of all goods, services and products sold at, from, or through the Kidokinetics Business or made pursuant to the rights granted hereunder, and all other income of every kind and nature related to the Kidokinetics Business, whether from cash, or credit, and regardless of collection in the case of credit, including the full redemption value of any gift card, gift certificate or coupon sold for use in the Kidokinetics Business (fees retained by or paid to third-party sellers of such gift cards, gift certificates or coupons are not excluded from this calculation), and all proceeds from any business interruption insurance. It does not include (i) any sales tax or other taxes collected from customers for, and turned over to, the governmental authority imposing the tax, (ii) properly documented refunds to customers, or (iii) properly documented employee discounts (limited to 3% of Gross Sales). Gross Sales include sales of gift cards and gift certificates at the time Franchisee receives the funds from the purchase of such gift cards and gift certificates. For purposes of clarification and not by way of limitation, there are no deductions, discounts, refunds, or allowances from the definition of Gross Sales except as expressly set forth in the preceding sentence.
- 16.2.14. refuses to permit Franchisor to inspect or audit Franchisee's books or records;
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, understating gross sales can lead to termination of the franchise agreement. Specifically, if a franchisee understates gross sales by 5% at any time, Kidokinetics has grounds for termination. Additionally, even if the understatement is less than 5%, repeated offenses can also lead to termination; understating gross sales by any amount on three or more occasions, regardless of whether the issues were corrected, is grounds for termination.
Kidokinetics requires franchisees to submit Gross Sales Reports, and falsifying any report required by the franchisor is also a cause for termination. Gross Sales are defined as revenues from all goods, services, and products sold through the Kidokinetics business, including cash and credit transactions, and the full redemption value of gift cards or coupons. The only deductions allowed from Gross Sales are sales tax, documented refunds to customers, and documented employee discounts limited to 3% of Gross Sales.
These stipulations highlight the importance of accurate financial reporting for Kidokinetics franchisees. Franchisees must maintain meticulous records and ensure their Gross Sales Reports are precise to avoid potential default and termination of their franchise agreement. The franchisor also has the right to inspect or audit the franchisee's books and records, and refusal to permit such inspection is also grounds for termination.