What factors might explain the increase in 'prepaid expenses' from 2023 to 2024 for C12 Group?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
s were presented on a consolidated basis and all significant intercompany accounts and transactions eliminated.
Revenue Recognition: A majority of the Company's revenues are derived from franchise fees. Franchise agreements generally require the franchisee to pay 1) an initial non-refundable territory fee of $25,000 per franchise unit, 2) a prepaid marketing deposit of $10,000, 3) a training and support fee of $10,000 to $12,500, which is refundable prior to the start of training, 4) continuing fees based upon a percentage of monthly member billings ranging from 12% to 30%, and 5) a new member registration fee ranging from $300-500. Franchise agreements are renewed annually with no additional charges.
When a franchise is sold, the Company agrees to provide certain services to the franchisee, including assisting with site selection, training, reference and promotional materials and assistance with local C12 events. Initial territory fees are recognized as revenue when substantially all initial services under the franchise agreement are completed.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, C12 Group franchisees are required to pay a few different fees which could be classified as prepaid expenses. These include a $10,000 prepaid marketing deposit, as well as fees for semi-annual chair training. An increase in 'prepaid expenses' from 2023 to 2024 for C12 Group could be due to an increase in the number of new franchises sold, increases to existing fees, or changes in accounting practices.
Specifically, C12 Group requires franchisees to pay a $10,000 prepaid marketing deposit. This fund is intended to be used for promoting the formation of new C12 Forums, and the franchisee must spend the full amount within eighteen months of the franchise agreement. Any unspent funds are forfeited to the franchisor. This prepaid marketing fund could be a significant component of 'prepaid expenses'.
Additionally, franchisees must attend semi-annual training workshops and pay a monthly fee to cover the cost of these events. The fee is currently $110 per month, and C12 Group may increase this fee at its discretion. Franchisees also pay $110 per month for each Associate Chair they engage to cover the registration fees for these events. An increase in either the number of Associate Chairs or the monthly fee for training could contribute to higher prepaid expenses.
To gain a comprehensive understanding of the factors influencing the increase in prepaid expenses, a prospective franchisee should consider asking C12 Group for a detailed breakdown of what specific items are included in the 'prepaid expenses' category on their balance sheet. Furthermore, it would be prudent to inquire whether there were any changes in accounting policies or practices between 2023 and 2024 that might have affected how these expenses were classified or reported.