What is the Crave Cookies franchisee's obligation regarding upfront franchise fees?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
timing and amount of revenue recognized related to these revenues was not impacted by the adoption of Topic 606.
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.
Notes to the Financial Statements
Note 2 - Revenue from Contracts with Franchisees (continued)
During the year ended December 31, 2024, the Company recognized franchising fees of $710,776.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, franchisees are obligated to pay upfront franchise fees. Crave Cookies recognizes revenue from these fees by allocating approximately 80% to pre-opening training and services, which are recognized upon the franchise opening and completion of training. The remaining 20% of the upfront franchise fees are recognized as revenue over the expected 10-year life of the franchise agreement.
If a Crave Cookies franchise location closes before the estimated 10-year term, Crave Cookies will recognize any remaining unearned revenue and deferred costs as income at the time of closure. The revenue from these upfront franchise fees is recognized on a straight-line basis, aligning with the franchisee's right to use and benefit from Crave Cookies' intellectual property.
Franchise fees collected before the store opening are treated as contract liabilities, also known as deferred revenue, and are recognized as income once the Crave Cookies location opens. During the year ended December 31, 2024, Crave Cookies recognized franchising fees of $710,776, while franchisee deposits amounting to $1,277,049 were deferred until the revenue recognition requirements were met.