Where are advertising revenues presented within Craters & Freighters' financial statements?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties, including franchisee contributions to advertising funds, represent sales-based royalties and are calculated as a percentage of net sales reported by franchisees and recognized over time as franchisee sales occur. These revenues are presented within "royalties" and expenses incurred to provide these services are included within "franchisee support." Regarding advertising funds, under the new revenue standard, the Company has determined it acts as a principal of the franchisee advertising transactions, thus, revenue and expense are presented gross. These revenues are presented within "franchise revenues" and expenses incurred to provide these services are included within "advertising." When revenues of an advertising program exceed the related advertising expenses, advertising costs are accrued up to the amount of revenues on an annual basis.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to Craters & Freighters' 2025 Franchise Disclosure Document, advertising revenues, which include franchisee contributions to advertising funds, are presented within "franchise revenues" in the company's financial statements. This categorization is based on Craters & Freighters acting as the principal in franchisee advertising transactions, which necessitates that both revenue and expenses are reported on a gross basis. The expenses incurred to provide these advertising services are included within "advertising".
This accounting treatment means that the Craters & Freighters' revenue from advertising is not netted against the expenses. Instead, both the gross revenue and the associated expenses are reported separately. Furthermore, the FDD states that when the revenues from an advertising program exceed the related advertising expenses, Craters & Freighters accrues advertising costs up to the amount of revenues on an annual basis.
For a prospective franchisee, understanding this accounting practice is crucial because it provides insight into how Craters & Freighters manages and reports advertising funds. It also clarifies that the advertising contributions made by franchisees are treated as revenue for Craters & Freighters, with corresponding expenses reported separately, offering a transparent view of advertising fund management.