How does Checkers handle the accounting for transfer fees associated with franchisee-to-franchisee sales of Checkers restaurants?

According to Checkers' 2025 Franchise Disclosure Document, transfer fees, which are associated with franchisee-to-franchisee sales of restaurants, are paid by the new franchisee. These fees are initially recorded as deferred revenue when received by Checkers. This means Checkers does not immediately recognize the full amount as earned income.

Instead, Checkers recognizes the transfer fee revenue gradually over the contractual term of the new franchise agreement. This accounting method aligns the revenue recognition with the period during which the new franchisee benefits from the franchise rights and support provided by Checkers. This approach is consistent with accounting practices that match revenue with the associated services or benefits provided over time.

In practical terms, this means that while Checkers receives the transfer fee upfront, its financial statements will reflect the income from that fee spread out over the life of the franchise agreement. For a prospective franchisee, this accounting treatment is important to understand as it affects Checkers' reported revenues and financial performance in any given period. It also ensures that Checkers' revenue recognition is aligned with the ongoing obligations and support it provides to its franchisees.