What Does a Franchise Audit Lawyer Handle?

The word audit does double duty in franchising. It can mean the audited financial statements and the annual Franchise Disclosure Document update that Federal Trade Commission (FTC) rules require, and it can mean a royalty or operational audit of a franchisee under the franchise agreement. Accordingly, answers to queries like, “What does a franchise audit lawyer handle?” usually involve both kinds of work.

The attorneys at Franchise.Law have extensive experience in helping franchisors to comply with their annual FDD update and audited financial statement requirements. Our lawyers are licensed in North Carolina and Florida and work with franchisors nationwide, which reflects the FTC’s national oversight of franchisors. We work with franchisors to verify that they are in compliance with the federal and state laws, rules, and regulations that govern their businesses and that they are meeting all applicable legal and operational standards.

Are There Different Types of Franchise Audits?

Attorneys who focus their practice on representing franchisors, like the legal team at Franchise.Law, will have experience in handling the three main types of franchise audits:

• Royalty and Finance Audits, which involve in-depth assessments of sales made by franchisees and royalty and other payments collected by the franchisor (separately, FTC rules require that a Franchise Disclosure Document include audited financial statements prepared by an independent accountant)
• Business and Operational Audits, which confirm that franchisees are adhering to their contractual franchise agreement obligations and that standards and operations are consistent among all franchisees
• Legal Audits, which verify territorial, licensing, purchasing, advertising, and other matters described in the Franchise Disclosure Document and other materials

New franchisors that do not have long histories of selling franchises might qualify for an exception to the FTC’s requirement to provide audited financial statements. If your business is in its first three years of franchising, consult with your franchise lawyer to determine if the business can get a “phase-in” exception that allows unaudited financial statements.

All types of franchise audits involve thorough reviews of substantial amounts of files and records. A franchise attorney who has provided regular legal representation to a franchisor will be familiar with those records and can efficiently compile and review them without wasting time or other resources.

What Are the Benefits of a Franchise Audit?

An experienced franchise attorney who is handling your business’s audit might also focus on added benefits that those audits can provide:

• Comparing revenue from different franchisees, and confirming that all franchisees are paying proper royalty and other fees
• Verifying that a franchisor’s intellectual property, including trademarks and logos, are being used properly to maintain the brand reputation and quality expectations
• Uncovering gaps in franchisor operations that can impact revenue, employment policies, and reporting issues
• Providing evidence of non-compliance that might justify extended oversight of certain franchisees or the imposition of contractual penalties for underpayments

These matters take on added importance as your ability to manage relationships with a growing pool of franchisees is stretched as your franchisor operations expand into different states. If you sense weaknesses in any aspects of your organization, an experienced franchisor lawyer will have suggestions for how specific types of audits can help to identify those weaknesses.

Call Franchise.Law for More Details on What a Franchise Audit Lawyer Handles

For more information or if you are still wondering what exactly a franchise audit lawyer handles, please call Franchise.Law to consult with a member of our legal team. We have provided audit assistance to franchisors around the United States since 2016, and we can give your business the assistance it needs to complete a comprehensive operational audit.