When does Carvel begin recognizing franchise fees as revenue for a specific Carvel franchise agreement?

According to Carvel's 2025 Franchise Disclosure Document, franchise fees are initially recorded as deferred revenue upon receipt. Carvel then recognizes this revenue on a straight-line basis over the term of the franchise agreement. This revenue recognition commences specifically when the store-based restaurant (SBR) is opened.

This accounting practice means that Carvel doesn't immediately count the franchise fee as earned income. Instead, it spreads the recognition of the revenue over the life of the franchise agreement, which is a common practice that aligns the revenue with the ongoing services and support Carvel provides to the franchisee. This approach provides a more accurate reflection of the value Carvel delivers throughout the franchise term.

For a prospective Carvel franchisee, this deferred recognition has no immediate financial impact. However, it's important to understand that Carvel's reported revenue in its financial statements will reflect this accounting method. This can be a key factor in assessing the financial health and stability of the franchisor. Franchisees should also note that the 'straight-line basis' means an equal amount of revenue is recognized each period (e.g., monthly or quarterly) during the franchise term after the SBR opens.