What costs does Chatime capitalize as direct and incremental costs associated with the sale of franchises?

According to the 2025 Chatime Franchise Disclosure Document, the direct and incremental costs associated with the sale of franchises primarily consist of commissions. These costs are recorded as "Prepaid commissions" on the balance sheets. The disclosure indicates that these costs are expected to be recognized over the term of the associated franchise agreements.

For a prospective Chatime franchisee, this means that Chatime accounts for the expenses directly related to selling the franchise (mainly sales commissions) as an asset on their balance sheet initially. This "prepaid commissions" asset is then expensed over the life of the franchise agreement. This accounting treatment aligns the expense recognition with the period that Chatime expects to benefit from the franchise agreement.

It is important for potential franchisees to understand how these costs are handled, as it provides insight into Chatime's financial practices. While the FDD excerpt specifies that commissions are the primary direct and incremental costs, it does not provide specific figures or a detailed breakdown of these costs. A prospective franchisee may want to inquire about the typical range of these commissions and how they are amortized over the franchise term to gain a clearer picture of Chatime's financial performance and obligations.