When does Closet Storage Concepts recognize revenue from initial franchise fees?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
Initial franchise fees are payable by the franchisee upon signing a new franchise agreement or successor franchise agreement. Revenue from initial fees is recognized when the performance obligation is satisfied. Performance obligations that are normally satisfied by the opening of the franchised business to the public are determined to be earned during the period from the execution of the contract to the opening of the franchised business which is generally less than one year. Unearned initial fee revenues from franchisee acquisition and acceptance will be as deferred non‐refundable revenue and recognized as revenue over the term of the contract which is currently 10 years. There are currently no unearned initial fee revenues as management has determined that all performance obligations have been satisfied.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts's 2025 Franchise Disclosure Document, the company recognizes revenue from initial franchise fees when the performance obligation is satisfied. Initial franchise fees are payable by the franchisee upon signing a new franchise agreement or a successor franchise agreement. For Closet Storage Concepts, the performance obligations are typically satisfied by the opening of the franchised business to the public, and this generally occurs within one year from the execution of the franchise agreement.
Closet Storage Concepts also states that unearned initial fee revenues from franchisee acquisition and acceptance will be deferred and recognized as revenue over the term of the contract, which is currently 10 years. However, as of the date of the financial statements, Closet Storage Concepts management has determined that all performance obligations have been satisfied, meaning there are no unearned initial fee revenues.
For a prospective Closet Storage Concepts franchisee, this means that the initial franchise fee paid is typically recognized as revenue by Closet Storage Concepts once the franchisee's business opens to the public. If there were any remaining obligations, the revenue recognition would be spread out over the 10-year term of the franchise agreement. However, currently, Closet Storage Concepts recognizes the full initial fee once the franchisee's business is operational.