What happens if a Crave Cookies franchise location closes before the estimated 10-year life?
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, the standard franchise agreement is generally for 10 years. Crave Cookies recognizes a portion of the initial franchise fee as revenue over this expected 10-year term. Specifically, about 80% of the initial franchise fee is recognized upon the opening of the franchise and completion of training. The remaining portion is recognized gradually over the 10-year franchise agreement.
If a Crave Cookies franchise closes before the end of this 10-year period, the company recognizes any remaining unearned revenue and deferred costs into income at the time of closure. This means that Crave Cookies will account for the remaining portion of the initial franchise fee that hasn't yet been recognized as revenue.
For a prospective franchisee, this accounting practice has no direct financial impact. However, it provides insight into how Crave Cookies manages its finances and recognizes revenue. It also highlights the importance of the 10-year franchise term in the company's financial planning. Franchisees should be aware that the franchisor's revenue recognition is tied to the franchise agreement's duration, which could influence decisions related to franchise support and compliance.