What was the total amount of Chesters' unearned franchise fees in 2023?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
L, LLC BALANCE SHEETS DECEMBER 31, 2024 AND 2023**
| 2024 | 2023 | |
|---|---|---|
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash | $ 2,154,968 | $ 2,515,674 |
| Accounts receivable, net | 1,656,584 | 5,299,346 |
| Other receivables | 421,459 | - |
| Due from related parties | 1,354,649 | 1,117,539 |
| Inventories | - | 1,247,308 |
| Prepaid expenses and other current assets | 139,284 | 80,338 |
| Total current assets | 5,726,944 | 10,260,205 |
| PROPERTY AND EQUIPMENT, NET | 1,100,082 | 878,650 |
| OPERATING LEASE RIGHT-OF-USE ASSETS, NET | 1,631,103 | 1,820,812 |
| GOODWILL, NET | 1,290,926 | 1,613,657 |
| TOTAL ASSETS | $ 9,749,055 | $ 14,573,324 |
| LIABILITIES AND MEMBERS' EQUITY | ||
| CURRENT LIABILITIES | ||
| Accounts payable | $ 1,070,100 | $ 2,904,502 |
| Accrued liabilities | 2,070,417 | 1,285,555 |
| Customer deposits | 361,152 | 609,822 |
| Current maturities of long-term debt | 480,225 | 1,628,607 |
| Current portion of operating lease liability | 121,564 | 181,240 |
| Unearned franchise fees | 190,950 | 136,500 |
| Total current liabilities | 4,294,408 | 6,746,226 |
| LONG-TERM LIABILITIES | ||
| Other long-term liabilities | 174,238 | - |
| Operating lease liabilities, less current portion | 1,720,489 | 1,842,053 |
| Long-term debt | 1,511,526 | 1,123,700 |
| Total long-term liabilities | 3,406,253 | 2,965,753 |
| TOTAL LIABILITIES | 7,700,661 | 9,711,979 |
| MEMBERS' EQUITY | 2,048,394 | 4,861,345 |
| TOTAL LIABILITIES |
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters' 2025 Franchise Disclosure Document, the company had $136,500 in unearned franchise fees in 2023. These unearned fees represent initial franchise fees received from franchisees for individual locations that have not yet opened. Chesters recognizes these fees as revenue only upon the opening of the franchise location.
For a prospective Chesters franchisee, this indicates that a portion of the initial franchise fees paid by new franchisees in 2023 had not yet been recognized as revenue by Chesters because the corresponding franchise locations were still in the pre-opening phase. This is a common accounting practice in franchising, as the franchisor's performance obligation (i.e., opening the store) has not yet been fully satisfied.
The FDD also states that unearned franchise fees consist of initial franchise fees from individual franchise location sales to third parties. These fees are recognized upon the opening of the franchise. This means that Chesters does not immediately recognize the initial franchise fee as revenue when it's collected. Instead, it waits until the store opens, at which point the fee is considered earned and is then recognized as revenue.
Understanding the amount of unearned franchise fees can provide insight into Chesters' pipeline of new store openings and its revenue recognition practices. A higher amount of unearned franchise fees might suggest a strong pipeline of upcoming openings, while a lower amount could indicate fewer new franchise sales or slower opening times. Franchisees should inquire about the typical timeframe between franchise sale and store opening to better understand the implications of these unearned fees.