How does Clear Pest Pros account for the costs to obtain a franchise agreement?

According to Clear Pest Pros' 2025 Franchise Disclosure Document, the company incurs expenses like commissions or third-party broker and referral fees to secure franchise agreements. Since the franchise fee revenue is recognized over time, these costs are initially capitalized as deferred expenses. This means Clear Pest Pros doesn't immediately expense these costs but instead spreads them out over the term of the franchise agreement.

For the years ending December 31, 2024, 2023, and 2022, the amounts expensed related to these costs were approximately $206, $232, and $237, respectively (in thousands). This indicates a relatively consistent level of expense recognition for franchise agreement costs over these three years. By capitalizing and then expensing these costs over the franchise term, Clear Pest Pros aligns the expense recognition with the revenue generated from the franchise agreements.

This accounting treatment is a common practice in franchising, as it matches the costs of acquiring a franchise agreement with the revenue that the agreement is expected to generate over its lifespan. For a potential Clear Pest Pros franchisee, this accounting method used by the franchisor provides insight into how the franchisor views the long-term value and revenue-generating potential of its franchise agreements.