OFFICE HOURS: 9AM - 5PM MON TO FRI
As a franchisor, you have placed a lot of confidence in your franchisees to run their businesses smoothly and give your brand a good name. This trust is essential to any business relationship. Still, much like a check-up with a doctor, it benefits everyone to conduct a periodic audit of the operations to ensure everything is functional and to fix any issues before they get out of control. A Georgia franchise auditing lawyer could help guide you through this process so you are prepared for the results.
Although we are based in Charlotte, NC, and not licensed to practice in Georgia, Franchise.Law focuses on helping franchisors across the country with federal issues. Since an audit is required by federal regulations in some situations, our franchise attorneys are able to represent you and provide advice in this regard.
An audit is a systematic review of a business. Contrary to some belief, the goal of an audit is not to go searching for faults or errors—it is to check that everything is being done in accordance with the established rules. When it comes to franchises, there are three different types of audits: financial, operational, and compliance.
Financial audits are conducted to verify the accuracy of the financial records and royalty payments according to the agreement. A financial review could also look at cost inefficiencies as a way to increase profitability.
Operational reviews focus on the day-to-day workings of the franchisee to ensure that they are adhering to established procedures that are consistent with the brand. This could include uniforms, layouts, and a minimum standard of quality in the products.
Compliance assessments are slightly different because they are concerned with the laws and regulations rather than the business’s profitability or brand. Depending on the type of business, a franchise could be subject to labor laws, health standards, and safety protocols as part of the inspection. This type of audit is possibly the most important because failing to comply with the rules could result in fines or closures.
Regular audits in these areas could benefit franchisors in Georgia, and a lawyer could help you be proactive in addressing deficiencies, whether your goal is to increase profits or remediate noncompliance with a particular regulation.
Before entering into an agreement with a franchisee, the franchisor must provide a set of disclosure documents in accordance with the state or the Federal Trade Commission (FTC). These documents are meant to educate the potential franchisee about the business so they can make an informed decision about entering into an agreement.
The franchise’s financial statements are a required item of this package under the FTC’s rules, codified in 16 Code of Federal Regulations. § 436.5. The item detailing the financial statements explicitly states that these statements must be audited by an independent accountant.
Georgia only requires statements that are less than 13 months old, and these do not have to be audited. However, auditing is highly recommended because it could ensure that the documents are accurate and free of accounting errors.
Consulting with an attorney who has experience with these audits could help franchisors in Georgia prepare their required documentation at both the federal and state levels.
At Franchise.Law, we help franchisors with all aspects of their business. A Georgia franchise auditing lawyer could guide you through the review process and help you use the results to benefit your operations.
If you have questions about an audit, we are here to answer them. Call us today to speak with a member of our team.