How are Cicis initial and renewal franchise fees recognized as revenue?

According to Cicis's 2025 Franchise Disclosure Document, both initial and renewal franchise fees are recognized as revenue on a straight-line basis. This revenue recognition begins when the restaurant opens and extends over the term of the franchise agreement, which can range from five to ten years. This means that Cicis does not recognize the entire franchise fee as revenue immediately upon payment. Instead, it spreads the revenue recognition evenly over the life of the franchise agreement. This approach provides a more consistent and predictable revenue stream for Cicis.

For a prospective Cicis franchisee, this accounting practice has implications for the franchisor's financial statements. The fees paid before the restaurant opens are recorded as deferred revenue on Cicis's combined balance sheets. This deferred revenue represents the portion of the franchise fee that Cicis has received but not yet recognized as earned revenue. As the restaurant operates and the franchise agreement progresses, Cicis recognizes a portion of the deferred revenue as actual revenue each month or year.

This accounting treatment is a common practice in the franchise industry, as it aligns revenue recognition with the ongoing services and support that the franchisor provides to the franchisee over the term of the agreement. It also reflects the fact that the value of the franchise is realized over time, as the franchisee operates the business and benefits from the franchisor's brand, systems, and support. This method ensures that Cicis's financial reporting accurately reflects the economic substance of the franchise relationship.