When does Checkers recognize franchise fees as revenue?
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. Transfer fees are fees for selecting pre-approved buyers for franchisee-to-franchisee sales of restaurants. The transfer fees are paid by the new franchisee, deferred when received, and recognized as revenue over the contractual term of the new franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, franchise fees are initially recorded as deferred revenue upon receipt. Checkers recognizes this revenue over the contractual term of the franchise agreement, but only after the restaurant has opened. This means that the initial franchise fee paid by a new franchisee is not immediately recognized as income by Checkers. Instead, it is spread out over the life of the franchise agreement, which is generally 20 years with a 10-year renewal option, assuming certain conditions are met.
Area development fees, which are paid for the rights to develop multiple Checkers restaurants, follow a similar pattern. These fees are also deferred when received and then allocated to each restaurant that is part of the development agreement. The revenue recognition occurs over the contractual term of each individual franchise agreement, starting once each specific restaurant opens. This ensures that Checkers recognizes revenue in alignment with the franchisee's ability to operate and generate sales under the Checkers brand.
Transfer fees, which arise when an existing franchisee sells their restaurant to a new, pre-approved franchisee, are treated similarly. These fees are paid by the incoming franchisee, deferred upon receipt by Checkers, and then recognized as revenue over the contractual term of the new franchise agreement. This consistent approach to revenue recognition ensures that Checkers' financial statements accurately reflect the ongoing value and support provided to its franchisees throughout the duration of their agreements.
This accounting practice is standard in the franchise industry, as it aligns the revenue recognition with the ongoing obligations and support that the franchisor provides to the franchisee. For a prospective Checkers franchisee, this means that the initial fees contribute to the long-term relationship and support system offered by Checkers, rather than being a one-time payment for immediate services.