What pre-opening services does Chesters treat as distinct from the franchise license under the practical expedient?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
On January 28, 2021, the FASB issued Accounting Standards Update (ASU) 2021-02, Franchisors—revenue from Contracts with Customers, which allows a nonpublic company franchisor to use a practical expedient when identifying performance obligations in its contracts with customers. The practical expedient allows the private company franchisor to treat certain preopening services that are provided to the franchisees as distinct from the franchise license. The preopening services are as follows: (a) training of the franchisee's personnel or the franchisee and preparation (b) advise on operations, new developments, techniques and improvements in restaurant management, food preparation, sales promotion and service. The Company has applied the practical expedient retrospectively to all periods presented.
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the company utilizes a practical expedient that allows them to treat specific pre-opening services as distinct from the franchise license itself. This accounting method is permitted under Accounting Standards Update (ASU) 2021-02 issued by the FASB, which is designed for nonpublic company franchisors like Chesters. This means that Chesters can recognize revenue associated with these services differently than the revenue from the franchise license.
The pre-opening services that Chesters treats as distinct include: (a) training of the franchisee's personnel or the franchisee and preparation and (b) advice on operations, new developments, techniques, and improvements in restaurant management, food preparation, sales promotion, and service. By separating these services, Chesters can recognize the revenue associated with them as they are delivered, rather than deferring the recognition over the life of the franchise agreement.
For a prospective Chesters franchisee, this accounting treatment may not have a direct impact on day-to-day operations. However, it provides insight into how Chesters recognizes revenue and manages its financial reporting. It also indicates that Chesters provides significant pre-opening support in the areas of training and operational advice, which could be a valuable benefit for new franchisees. The company has applied the practical expedient retrospectively to all periods presented.