If I understate royalties by 1% will Potbelly Sandwich Works charge an audit fee?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
| Column 1 | Column 2 | Column 3 | Column 4 |
|---|---|---|---|
| Type of fee1 | Amount | Due Date | Remarks |
| Audit | Cost of inspection or audit (amount of which depends on circumstances and extent of your non compliance) | 15 days after billing | Due if you do not give us reports, supporting records, or other required information or understate required Royalties or other amounts by more than 2%. |
Source: Item 6 — OTHER FEES (FDD pages 17–24)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, understating royalties by a small amount can trigger an audit. Specifically, if a franchisee understates required royalties or other amounts by more than 2%, Potbelly Sandwich Works has the right to charge an audit fee. The amount of the audit fee will depend on the circumstances and the extent of the non-compliance.
In practical terms, this means that if you understate your royalties by 1%, Potbelly Sandwich Works will not automatically charge you an audit fee. However, if the understatement exceeds 2%, you will be subject to an audit, and you will be responsible for covering the cost of the inspection or audit. This policy is in place to ensure accurate reporting and payment of royalties, which are a crucial revenue stream for Potbelly Sandwich Works.
It's important for prospective Potbelly Sandwich Works franchisees to maintain accurate records and diligently report all revenue to avoid triggering an audit. Franchisees should also ensure they understand how royalties are calculated and what constitutes Total Revenue, as even unintentional errors could lead to underreporting. This policy is fairly standard in the franchise industry, as franchisors rely on accurate royalty payments to support their brand and operations.