What is the expected life of the Crave Cookies franchise agreement used for revenue recognition?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
For the franchise fees, the Company has determined that the services they provide in exchange for upfront franchise fees, which primarily relate to pre-opening training and other services, are individually distinct from the ongoing services they provide to their franchisees. As a result, these pre-opening are recognized upon the franchise opening, and completion of the related training. The pre-opening fees that are recognized upon the franchise opening are generally 80% of the initial franchise fee. The remaining portion of the upfront franchise fees are recognized as revenue over the expected life of the franchise agreement, which is generally 10 years. If a franchise location closes before this estimated 10-year life, the Company recognizes the remaining unearned revenue and deferred costs into income at the time the location closes. Revenues for these upfront franchise fees are recognized on a straight-line basis, which is consistent with the franchisee's right to use and benefit from the intellectual property. Franchise fees that are collected prior to the location opening are considered contract liabilities (also known as deferred revenue) and are recognized as income when the franchise location opens.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies's 2025 Franchise Disclosure Document, the company recognizes a portion of the upfront franchise fees as revenue over the expected life of the franchise agreement, which is generally 10 years. This means that when a new Crave Cookies franchise opens, the initial franchise fee is not fully recognized as revenue immediately. Instead, approximately 80% of the fee is recognized upon the franchise opening and completion of training.
The remaining portion of the upfront franchise fees is then recognized as revenue gradually over the 10-year term of the franchise agreement. This accounting practice aligns the revenue recognition with the franchisee's ongoing right to use and benefit from Crave Cookies's intellectual property and brand. It also reflects the continuing support and services that Crave Cookies provides to its franchisees throughout the term of the agreement.
However, if a Crave Cookies franchise location closes before the end of this 10-year period, the company will recognize any remaining unearned revenue and deferred costs into income at the time of closure. This ensures that the financial statements accurately reflect the actual duration of the franchise agreement and the services provided. This is a fairly standard practice in the franchise industry, as it aligns revenue recognition with the actual term and performance of the franchise agreement.