How does Alloy account for the depreciation and amortization of leasehold improvements?

According to Alloy's 2025 Franchise Disclosure Document, the company uses the straight-line method to calculate depreciation and amortization. For leasehold improvements, this is done over the shorter of either the useful life of the improvement or the lease term. This accounting practice means that the cost of the leasehold improvements is spread evenly over the period that the franchisee benefits from them, either the duration of their useful life or the length of the lease.

This approach is fairly standard in the franchise industry, as it aligns the expense recognition with the period of benefit. By using the shorter of the asset's useful life or the lease term, Alloy ensures that the entire cost of the leasehold improvements is expensed by the end of the lease, which is a conservative accounting approach. This can impact a franchisee's financial statements by reducing net income during the depreciation period, but it also provides a more accurate picture of the franchisee's profitability over time.

For a prospective Alloy franchisee, this means that the initial investment in leasehold improvements will be systematically expensed over the lease term, impacting their profitability during that period. It is important for franchisees to understand this accounting method when projecting their financial performance and considering the return on their investment. Franchisees should consult with a financial advisor to fully understand the implications of this depreciation method on their specific financial situation.