Are pre-opening costs for Benihana company-owned restaurants expensed before or after the restaurant opens for business?

According to Benihana's 2024 Franchise Disclosure Document, pre-opening costs for company-owned restaurants are expensed as they are incurred prior to the restaurant opening for business. This means that Benihana recognizes these expenses on its income statement before the restaurant begins generating revenue.

For a prospective Benihana franchisee, this accounting practice is relevant because it affects the reported profitability of company-owned restaurants. While franchisees do not directly bear these pre-opening expenses, understanding how the franchisor manages its finances can provide insights into the overall financial health and stability of the Benihana system. Knowing that these costs are expensed immediately can give a more transparent view of a new restaurant's initial financial performance.

Furthermore, the FDD indicates that pre-opening expenses for STK and Kona Grill restaurants include manager salaries and relocation costs, employee payroll, training costs for new employees, and lease costs incurred prior to opening. These expenses can vary significantly depending on factors such as the location's proximity to existing restaurants, rent during construction, the size and layout of the location, staffing requirements, and any delays in obtaining necessary licenses and permits. For example, in 2023, Benihana incurred $8.9 million in pre-opening expenses, and $5.5 million in 2022. This information is useful for potential franchisees to understand the types and scale of costs associated with opening a new restaurant, even though these figures pertain to company-owned locations.