What costs are included in the deferred franchise costs for City Wide?
City_Wide Franchise · 2025 FDDAnswer from 2025 FDD Document
ecific circumstances of the borrower. There was no allowance for credit losses on notes recorded for the years ended December 31, 2024, 2023, and 2022.
Inventories
Inventories consist of preprinted marketing materials and specialty cleaning equipment for sale to franchisees. Inventories are stated at the lower of cost or net realizable value.
Deferred Franchise Costs
Deferred franchise costs relate to the Company's consideration of relevant costs incurred to obtain a new contract, namely brokerage fees paid to exter
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 65)
What This Means (2025 FDD)
According to City Wide's 2025 Franchise Disclosure Document, deferred franchise costs primarily consist of brokerage fees paid to external referral sources for securing new franchisee agreements. These costs are considered investments by City Wide to obtain new franchise contracts. The company recognizes these costs as assets and amortizes them over the expected life of the franchise agreement. This means that instead of expensing the entire brokerage fee immediately, City Wide spreads the expense over the duration of the agreement. City Wide also considers the possibility of impairment of these deferred costs annually.
For a prospective City Wide franchisee, this accounting practice has implications for the franchisor's financial statements. The presence of deferred franchise costs as assets on the balance sheet reflects City Wide's investment in expanding its franchise network. The amortization of these costs will impact the company's profitability over time.
It's important to note that City Wide monitors these deferred costs for impairment, meaning that if a franchise agreement is terminated prematurely, the remaining unamortized portion of the brokerage fees may be written off as an expense. During 2024 and 2023, City Wide recognized impairment losses of approximately $49,794 and $44,000, respectively, for terminated agreements. This indicates that City Wide's financial performance can be affected by franchise terminations and the resulting write-offs of deferred costs.