In order to maintain the quality and consistency of a franchised outlet it becomes necessary to inspect the facilities and franchise operations to make sure they are in compliance with confidential operations manual at all times. Franchisors must therefore have the right of inspection to check the books, audit the company and insure that image is maintained. In our franchise company I inserted a special clause into the franchise agreements, which address this issue, you will find it below;
3.17.2 Right of Inspection
Franchisor has the right, upon a minimum of forty-eight (48) hours notice, to inspect and audit Franchisee’s books, records, ledgers, journals, bank statements, sales tax reports, income tax returns, cash control systems and other accounting records pertaining to the Franchised Business. If any audit shows that the Franchisee has underpaid any royalties or other amounts due to Franchisor, Franchisee must immediately make payment to Franchisor to correct the underpayment. If the underpayment exceeds two percent (2%) of the total royalties, Promotional Fund contributions or other amounts due in any twelve (12) month period, which includes the date when the underpayment occurred, Franchisee must also pay or reimburse Franchisor for the costs of conducting the audit, in addition to any Late Payment owed to Franchisor.