When does Crave Cookies recognize the initial portion of franchise fee revenue?
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 recognizes the initial portion of the franchise fee revenue upon the franchise opening and completion of related training. This initial portion typically represents approximately 80% of the total 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 generally 10 years, using a straight-line basis.
For a prospective Crave Cookies franchisee, this means that while the entire franchise fee might be collected upfront, Crave Cookies only recognizes 80% of it as revenue when the franchisee's location opens and training is complete. The remaining 20% is recognized gradually over the 10-year franchise term. This accounting practice aligns the revenue recognition with the franchisee's use and benefit from Crave Cookies' intellectual property over the term of the agreement.
If a Crave Cookies franchise location closes before the end of the 10-year term, the company will recognize any remaining unearned revenue and deferred costs into income at the time of closure. This ensures that all revenue associated with the franchise is properly accounted for, even if the franchise agreement is terminated early. Franchise fees collected before the location opens are treated as contract liabilities, also known as deferred revenue, until the franchise location commences operations.