Over what period does Carbones Pizzeria recognize the renewal franchise fees?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
ions as royalties. Revenue from royalties is recognized each week based on a percentage of reported franchisee sales.
Initial and Renewal Franchise Fees
When an individual franchise is sold, the Company agrees to provide certain services to the franchisee. Generally, these services include assistance in site selection, training personnel, implementation of an accounting system, and design of a quality control program. The Company's initial and renewal franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement.
Notes to Consolidated Financial Statements For the Year Ended October 31, 2024
**2.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to the 2025 Carbones Pizzeria Franchise Disclosure Document, both initial and renewal franchise fees are recognized over the contractual term of the franchise agreement. For both initial and renewal agreements, the contract term is 10 years. This means that Carbones Pizzeria does not recognize the entire franchise fee as revenue immediately upon receipt.
Instead, Carbones Pizzeria spreads the recognition of the revenue from these fees over the entire 10-year period. For example, if a renewal franchise fee is $10,000, Carbones Pizzeria would recognize $1,000 of revenue each year for 10 years. This accounting practice aligns the revenue recognition with the period during which the franchisee benefits from the franchise rights and the services provided by Carbones Pizzeria.
This approach is common in the franchise industry, as it reflects the ongoing relationship and support provided to the franchisee throughout the term of the agreement. It also provides a more accurate representation of Carbones Pizzeria's financial performance over time, as the revenue is recognized in the periods in which the related services are provided.