How does Benihana account for advertising and promotion costs?

According to Benihana's 2024 Franchise Disclosure Document, the company expenses advertising and promotion costs as they are incurred. For the years ending December 31, 2021, and 2020, advertising expenses totaled $5.1 million and $2.5 million, respectively. This accounting practice means that Benihana recognizes these costs on its income statement in the period they occur rather than capitalizing them and amortizing them over time.

For a prospective Benihana franchisee, this information provides insight into how the franchisor manages its advertising expenditures. Knowing that Benihana expenses these costs immediately can help franchisees understand the company's financial reporting and potential profitability. It also reflects the company's investment in maintaining and promoting the brand.

Furthermore, franchisees are required to contribute to advertising efforts. During the franchise term, franchisees must pay Benihana a recurring advertising fee, termed "Advertising Contributions," which amounts to two percent (2%) of the restaurant's gross sales. These contributions are non-refundable and are due on the fifteenth of each calendar month, based on the gross sales of the preceding month. This mandatory contribution ensures a consistent flow of funds dedicated to marketing and promotional activities, which are deemed essential for maintaining the brand's goodwill and public image.