How does Checkersrallys account for franchise fees?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
y to franchise customers and the payment is due within 10 days of the billing. See the "accounts and notes receivable" below for additional information on franchise royalty payments. Royalty rates are generally 4% of net sales but the rates may vary based on restaurants qualifying under certain development or reimaging programs.
- Franchise fees including the initial franchise fee, transfer fees, area development fees, and renewal fees are recognized over the term of the franchise contract as the performance obligation to grant the franchise right is satisfied over each day of the contract term. Franchise fees may vary based on qualification under certain development incentive programs.
The Company earns retail royalty fees based on a contract for the sale of licensed products, including the Famous Seasoned Fries© at retail outlets. The performance obligation is satisfied as sales in the retail outlets are made, royalties are payable monthly within 30 days, and vary with retail sales volume.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company defers franchise fees, including initial franchise fees, transfer fees, area development fees, and renewal fees, and recognizes them as revenue over the term of the franchise contract. This aligns with the satisfaction of the performance obligation to grant the franchise right, which occurs daily throughout the contract term. These franchise fees may vary based on qualification under certain development incentive programs.
Area development fees are deferred upon receipt and allocated to each agreed-upon restaurant. Checkersrallys recognizes these fees as revenue over the contractual term of each respective franchise agreement, starting once the restaurant opens. Transfer fees, paid by new franchisees for franchisee-to-franchisee sales, are also deferred when received and recognized as revenue over the contractual term of the new franchise agreement.
For a prospective Checkersrallys franchisee, this accounting method means that the initial investment in franchise fees is not immediately recognized as revenue by the company. Instead, it is spread out over the life of the franchise agreement. This approach is typical in franchising, as it reflects the ongoing support and rights provided by the franchisor throughout the term of the agreement. Franchisees should be aware of the specific terms and conditions related to fee recognition, especially regarding development incentives and the timing of revenue recognition upon restaurant opening.