Over what period does Aw recognize non-refundable franchise fees as revenue?

According to Aw's 2025 Franchise Disclosure Document, the company recognizes non-refundable franchise fees as revenue over the life of the franchise agreement. Specifically, the document states that Aw records non-refundable franchise fees, net of amounts earned based on allowable direct services, as deferred revenues. These deferred revenues are then recognized over the duration of the franchise agreement.

This means that Aw does not recognize the entire franchise fee as revenue immediately upon receipt. Instead, it spreads the recognition of the revenue over the term of the franchise agreement. This accounting practice aligns with the Financial Accounting Standards Board (FASB) standards for revenue recognition, particularly Topic 606.

For a prospective Aw franchisee, this accounting practice has implications for the franchisor's financial statements. The portion of the franchise fee that has not yet been recognized as revenue is recorded as deferred revenue, which is a liability on Aw's balance sheet. The FDD indicates that the non-refundable franchise fees received but not yet earned as of December 31, 2024 and 2023, were $17,500 and $25,500 respectively. This deferred revenue balance reflects the amount of franchise fees that Aw has received but has not yet recognized as revenue because the services related to those fees have not yet been fully provided. Franchise fee revenue for 2024 was $8,000 and $8,250 for 2023.