Are the pre-opening services provided by Crave Cookies considered distinct from the ongoing services?
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' 2025 Franchise Disclosure Document, the company considers the services provided in exchange for upfront franchise fees distinct from the ongoing services offered to franchisees. These upfront services primarily involve pre-opening training and other related assistance. This distinction is important for revenue recognition purposes.
Specifically, Crave Cookies recognizes revenue from these pre-opening services upon the franchise opening and the completion of the associated training. This accounts for approximately 80% of the initial franchise fee. The remaining 20% of the initial franchise fee is recognized as revenue over the expected life of the franchise agreement, which is typically 10 years.
If a Crave Cookies franchise location closes before the end of this 10-year period, the company recognizes 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 location opens are treated as contract liabilities (deferred revenue) and are recognized as income once the franchise location commences operations.