How does Crave recognize unearned initial fee revenues from franchisee acquisition and acceptance?
Crave Franchise · 2025 FDDAnswer from 2025 FDD Document
initial set up of the franchisee, royalties, technology, and other service fees that are invoiced and earned either monthly or when a franchisee signs a franchise agreement.
Revenue recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606") which outlines a single, comprehensive model for accounting for revenue from contracts with customers.
Under ASC 606, revenue is recognized in accordance with a five-step model, as follows: identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations and recognizing revenue when (or as) the Company satisfies a performance obligation.
The Company derives its revenues primarily from franchisees in accordance with contractual agreements.
Each franchise agreement is comprised of several performance obligations. The Company identifies those performance obligations, determines the contract price for each obligation, allocates the transaction price to each performance obligation and recognizes revenue when the Company has satisfied the performance obligation by transferring control of the good or service to the franchisee.
The remainder of performance obligations represent a single performance obligation and are recognized over the term of the respective franchise agreement from the date the agreement is executed.
Source: Item 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, the company adheres to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606 for revenue recognition. This outlines a comprehensive model for accounting for revenue from contracts with customers.
Crave recognizes revenue using a five-step model under ASC 606. This involves identifying the contract, the performance obligations within it, determining the transaction price, allocating that price to each obligation, and recognizing revenue as each obligation is fulfilled. Each franchise agreement contains several performance obligations. Crave identifies these, determines the contract price for each, allocates the transaction price, and recognizes revenue when control of the good or service is transferred to the franchisee.
Specifically, unearned initial fee revenues from franchisee acquisition and acceptance are recorded as deferred revenue. This deferred revenue is then recognized as revenue over the term of the contract with each franchisee. This means Crave does not immediately recognize the entire initial franchise fee as revenue. Instead, it spreads the recognition of this revenue over the duration of the franchise agreement. This approach aligns the revenue recognition with the delivery of services and support to the franchisee throughout the term of the agreement.