When does Capriottis Sandwich Shop recognize initial franchise fees?
Capriottis_Sandwich_Shop Franchise · 2025 FDDAnswer from 2025 FDD Document
s records and advising the franchisee about income, real estate, and other taxes or about regulations affecting the franchisee's business.
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- Inspection, testing, and other quality control programs.
The Company elected to apply the practical expedient allowed by the accounting standards and has elected to account for all qualifying pre-opening activities as a single performance obligation.
Recognition of initial franchise fees is deferred and recognized at a point in time when the preopening services have been provided to the franchisees and upon the store opening. In the event a franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination. Of the $3,063,6
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Capriottis Sandwich Shop's 2025 Franchise Disclosure Document, the company defers recognition of initial franchise fees. Capriottis Sandwich Shop recognizes these fees at a specific point in time. This point occurs when the pre-opening services have been provided to the franchisees. Additionally, the store must be open for the fees to be recognized.
This accounting practice means that Capriottis Sandwich Shop does not immediately count the initial franchise fee as revenue when it's collected. Instead, they wait until they have fulfilled their obligations to the franchisee by providing the necessary pre-opening support and the store is operational. This is a common practice in franchising, as it aligns revenue recognition with the delivery of services.
Furthermore, the FDD states that if a franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination. This implies that if a franchisee's agreement ends before the store opens, Capriottis Sandwich Shop will recognize the remaining portion of the initial franchise fee as revenue at that time. This could impact the financial statements of Capriottis Sandwich Shop in instances of early terminations.
For a prospective franchisee, this accounting policy indicates that Capriottis Sandwich Shop's financial performance is tied to the successful opening and operation of its franchise locations. It also highlights the importance of understanding the terms of the franchise agreement regarding termination, as it can affect how and when Capriottis Sandwich Shop recognizes revenue related to that franchise.