Can the Closet Storage Concepts NAP borrow funds to cover deficits?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
Although we anticipate that all NAP contributions will be spent in the fiscal year in which they are received, any remaining amounts will be carried over for use during the next fiscal year. The NAP may spend more or less than the total NAP annual contributions in a given fiscal year and may borrow funds to cover deficits. If we terminate the NAP, we may choose to spend the funds in accordance with our then-current marketing policies or distribute funds to franchisees on a pro-rata basis. There is no requirement that the NAP be audited. Upon your written request, we will provide you with un-audited fiscal year-end accountings of NAP expenditures. (Section 3.5 of the Franchise Agreement). We do not owe you any fiduciary obligation for administering the NAP. We may incorporate the NAP or operate it through a separate entity if we deem appropriate. We may maintain contributions to the NAP in a separate bank account or hold them in our general account and account for them separately.
During the fiscal year ending December 31, 2024, the Closet & Storage Concepts NAP was not yet operative and no amounts were collected or spent.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS AND TRAINING (FDD pages 27–38)
What This Means (2025 FDD)
According to Closet Storage Concepts's 2025 Franchise Disclosure Document, the National Advertising Program (NAP) has the ability to borrow funds to cover deficits. While the franchisor anticipates that all NAP contributions will be spent during the fiscal year in which they are received, any remaining amounts will be carried over for use during the next fiscal year. This carry-over provision, along with the ability to borrow funds, provides flexibility in managing the NAP budget.
For a prospective Closet Storage Concepts franchisee, this means that the NAP, which is funded by franchisee contributions, can operate with some financial flexibility. The NAP may spend more or less than the total annual contributions in a given year, and can borrow to cover any shortfalls. However, the FDD states that there is no requirement that the NAP be audited. Franchisees can request unaudited fiscal year-end accountings of NAP expenditures.
It's important to note that Closet Storage Concepts does not owe franchisees any fiduciary obligation for administering the NAP. The franchisor also reserves the right to terminate the NAP and either spend the funds according to their current marketing policies or distribute the funds to franchisees on a pro-rata basis. The franchisor may also choose to incorporate the NAP or operate it through a separate entity, and may maintain contributions in a separate bank account or their general account, accounting for them separately.
During the fiscal year ending December 31, 2024, the Closet & Storage Concepts NAP was not yet operative and no amounts were collected or spent. This means that the program was in the initial stages of development or implementation during that period. Franchisees should inquire about the current status and operational details of the NAP to understand how it is being managed and how funds are being utilized for advertising and marketing purposes.