How does Checkers account for franchise fees and area development fees?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise fees are recorded as deferred revenue when received and recognized as revenue over the contractual term of the franchise agreements once the restaurant has opened.
Area development fees are deferred when received, allocated to each agreed upon restaurant, and recognized as revenue over the contractual term of each respective franchise agreement once the restaurant has opened.
Franchise fees and area development fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, both franchise fees and area development fees are initially recorded as deferred revenue when received. This means Checkers doesn't immediately recognize these fees as earned income. Instead, the revenue recognition occurs gradually over the term of the franchise agreement, but only after the restaurant has opened.
Area development fees are specifically allocated to each restaurant agreed upon in the development agreement. Checkers recognizes the revenue from these fees over the contractual term of each franchise agreement, starting once the specific restaurant has opened. This accounting method aligns the revenue recognition with the franchisee's actual operation of the restaurant.
Checkers considers franchise fees and area development fees to be highly dependent upon and interrelated with the franchise right granted in the franchise agreement. This suggests that the fees are directly tied to the value and benefit the franchisee receives from the franchise system over time. This approach is a standard accounting practice in franchising, where the initial fees compensate the franchisor for granting the right to operate under their brand and system.