How does Chem Dry recognize revenue from initial franchise fees?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
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- Upon execution of this Agreement by CDI, the Initial License Fee shall be deemed fully earned and non-refundable.
This Business Note represents the balance of the Initial Fee, Initial License Fee, or other amounts payable by Borrower to CDI under that certain Chem-Dry Franchise Agreement between Borrower, as franchisee, and CDI, as franchisor. Borrower's obligations under this Business Note are absolute, irrevocable and unconditional. No defense, claim, set off, or other cause in favor of Borrower arising under the Franchise Agreement shall affect Borrower's obligations to pay this Business Note in accordance with its terms. CDI may assign, transfer, discount or pledge this Business Note without notice to Borrower. Borrower acknowledges that its obligations under this Business Note are independent of and are not conditioned or dependent upon any rights or obligations of the parties to the Franchise Agreement.
If Borrower pays the Initial License Fee amount owed pursuant to the Franchise Agreement associated with this Business Note in full within six (6) months of the date of this Business Note, CDI will discount the total due for the Initial License Fee by ten percent (10%).
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the initial license fee is deemed fully earned and non-refundable upon the execution of the Franchise Agreement by Chem Dry. This means that Chem Dry recognizes the revenue from this fee as soon as the agreement is signed, regardless of whether the franchisee has started operations or received all the services associated with the franchise.
This policy has significant implications for prospective franchisees. Because the initial license fee is non-refundable, franchisees who terminate the agreement early or fail to establish their Chem Dry business will not receive a refund of this fee. This highlights the importance of carefully evaluating the Chem Dry franchise opportunity and ensuring sufficient capital before signing the agreement.
Chem Dry also offers financing for the initial license fee, where the franchisee makes a down payment and signs a Business Note for the balance. This Business Note is payable whether or not the Franchise Agreement terminates and is not subject to any claims. Chem Dry can also transfer the Business Note to a third party without notice to the franchisee. If the franchisee pays the Initial License Fee amount owed pursuant to the Franchise Agreement associated with this Business Note in full within six months of the date of this Business Note, Chem Dry will discount the total due for the Initial License Fee by ten percent. This arrangement allows Chem Dry to recognize the full revenue from the financed portion of the initial fee, even if payments are made over time, while transferring the financial risk to a third party if the note is assigned.