What is the limit on properly documented employee discounts that can be excluded from Gross Sales for a Kidokinetics franchise?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
"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, or otherwise, 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 the franchisee receives the funds from the purchase of such gift cards and gift certificates.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 46–54)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, franchisees can exclude properly documented employee discounts from their gross sales, but this exclusion is limited to 3% of Gross Sales. Gross Sales are defined as revenues from all goods, services, and products sold through the Kidokinetics business, including income from cash or credit transactions and the full redemption value of gift cards or coupons.
This means that a Kidokinetics franchisee can offer employee discounts as part of their compensation or benefits package, but they need to carefully track these discounts. Only the amount of discounts that falls within the 3% limit can be deducted when calculating gross sales. Discounts exceeding this threshold will not be excluded from the gross sales figure, which could impact royalty payments and other calculations based on revenue.
For example, if a Kidokinetics franchise has $100,000 in Gross Sales, up to $3,000 in properly documented employee discounts could be excluded from that Gross Sales figure. If the discounts totaled $4,000, only $3,000 would be excluded, and the franchisee would pay royalties and other fees on $97,000 instead of $96,000. It is important for franchisees to maintain accurate records of all employee discounts to justify these exclusions during audits or financial reviews.
This policy ensures that franchisees can offer employee discounts as a benefit without significantly impacting the franchisor's revenue calculations, while also setting a reasonable limit to prevent abuse or misreporting of sales figures. Franchisees should consult with their accountant and carefully review the FDD to fully understand the implications of this policy and ensure compliance.