As a principal of the franchisee advertising transactions, how does Craters & Freighters present revenue and expenses?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
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, when it comes to advertising funds, Craters & Freighters acts as the principal in franchisee advertising transactions. As such, the company presents both revenue and expenses on a gross basis. This means that the full amount of advertising revenue is reported, and the total advertising expenses are also reported separately, without netting them against each other. These revenues are categorized under "franchise revenues," while the related expenses are included within "advertising."
This accounting practice provides a transparent view of the advertising program's financial activity. Prospective franchisees can see the total revenue generated and the total expenses incurred, allowing for a clear understanding of the scale and cost of advertising efforts. This is particularly important for franchisees who contribute to these funds, as it allows them to assess the effectiveness and efficiency of the advertising programs.
Furthermore, the FDD states that if 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. This ensures that advertising funds are primarily used for advertising purposes, and any excess revenue is carried over to cover future advertising expenses. This policy offers some assurance that contributions are managed responsibly and in the best interest of the franchisees.
In summary, Craters & Freighters' method of presenting advertising revenue and expenses gross, along with its policy of accruing advertising costs up to the amount of revenues, aims to provide transparency and accountability in the management of franchisee advertising funds. This approach allows franchisees to have a better understanding of how their contributions are being used and the overall financial health of the advertising programs.