Owning a franchise has undeniable benefits, which many Rancho Cucamonga entrepreneurs find enticing. With a tried and true business model and established brand recognition, you can be up and running quickly. However, there are also distinct downsides to this business model, some of which can come as a surprise if you did not review the contract very carefully. For example, the franchisor can – and likely will – conduct a business audit periodically. What does that mean, and how can you prepare?
When you hear the word audit, you probably think of IRS. However, not all audits are tax related. In the case of franchises, the goal is usually to ensure fees paid to the franchisor are calculated correctly, as well as evaluating compliance and performance. There are many ways to audit a franchisee, which can be as simple self-reporting information on a survey. However, it can be a very formal process, which can be more intense than you might expect in a government audit.
Many franchisors hire professional audit services or have an in-house team dedicated to this task. The audit team will most likely review your financial records and tax returns, looking for any discrepancies between these numbers and what has been reported to the franchisor. They also -investigate compliance with the franchisor’s requirements, such as signage, HR policies, percentage of revenue spent on advertising, and use of approved materials.
The franchisor’s right to audit should be outlined in your contract, which can vary from one company to another. However, in most cases they reserve broad rights to view all or most of a franchisee’s records upon request. The best way to speed the process, reduce your stress, and avoid additional investigations is to be well prepared. This includes:
If you are facing any type of audit – be it franchise, internal, or tax – we call help. Call Whyte & Associates, Inc. at (909) 575-0080.