What happens if a Spray Net franchisee underreports gross sales?
Spray_Net Franchise · 2025 FDDAnswer from 2025 FDD Document
agrees that, notwithstanding any billing arrangements with any telephone company or yellow pages directory company, Franchisor will be deemed for purposes hereof to be the subscriber of such telephone numbers, with full authority to instruct the applicable telephone or yellow pages directory company as to the use and disposition of telephone listings and numbers. Franchisee hereby agrees to release, indemnify, and hold such companies harmless from any damages or loss as a result of following Franchisor's instructions.
- J. Liquidated Damages. Franchisee and Franchisor agree and acknowledge that the damages Franchisor will sustain upon an early termination of this Agreement are difficult to foresee and estimate. Therefore, upon the termination of this Agreement before the end of the Term, Franchisee shall pay Franchisor liquidated damages equal to seven percent (7%) of the applicable annual Minimum Gross Sales for the Franchised Business found in Section 6.Z. of this Agreement corresponding to the year of operation in which this agreement is terminated. For avoidance of doubt, the applicable annual Minimum Gross Sales will be based on the number of Territories Franchisee has purchased and the length of time that Franchisee has operated the Franchised Business. These liquidated damages are in addition to all remedies that Franchisor may have against Franchisee for breach of the restrictive covenants found in Section 14 of this Agreement or extracontractual claims such as fraud or unfair and deceptive trade practices.
- K. Reimbursement for Touch-up Work. If, after the termination or expiration of this Agreement, Franchisor, an affiliate of Franchisor, or another Spray-Net franchisee provides touch-up work for customers to whom Franchisee provided Approved Services, Franchisee shall reimburse Franchisor, Franchisor's affiliate(s), or another Spray-Net franchisee the actual costs of providing such touch-up work upon demand.
17. TAXES AND INDEBTEDNESS
- A. Taxes.
Source: Item 23 — RECEIPTS (FDD pages 75–219)
What This Means (2025 FDD)
Based on the 2025 Spray Net Franchise Disclosure Document, the consequences of underreporting gross sales are not explicitly detailed. However, the document does outline certain financial obligations and potential repercussions for franchisees, particularly regarding termination and fees.
Specifically, if the franchise agreement is terminated early, Spray Net franchisees must pay liquidated damages. These damages are calculated as seven percent (7%) of the applicable annual Minimum Gross Sales for the Franchised Business, as outlined in Section 6.Z of the agreement, corresponding to the year in which the agreement is terminated. The annual Minimum Gross Sales are determined by the number of territories the franchisee has purchased and the length of time the franchisee has operated the business.
Additionally, franchisees are required to pay taxes, including federal, state, and local taxes, related to the services or products they furnish. They are also responsible for all debts and obligations incurred in the operation of the franchised business. Franchisees also pay a monthly fee for Spray Net's Business Management Software, which includes a base fee of $350 plus 0.25% of the franchise's monthly Gross Sales. Franchisees must report all data related to products and services as required by Spray Net, which may include weather conditions and other data points. While the document does not directly address underreporting, these financial obligations and reporting requirements suggest that discrepancies in reported gross sales could lead to further investigation or penalties under the terms of the franchise agreement.