How does Crave Cookies recognize revenues for upfront franchise fees?
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 approximately 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 revenue from upfront franchise fees in two phases. First, approximately 80% of the initial franchise fee is recognized as revenue upon the franchise location's opening and the completion of related pre-opening training and services. Crave Cookies considers these pre-opening services distinct from the ongoing services provided to franchisees.
The remaining portion of the upfront franchise fees is recognized as revenue over the expected life of the franchise agreement, which is typically 10 years. This revenue is recognized on a straight-line basis, aligning with the franchisee's right to use and benefit from Crave Cookies's intellectual property over that period. This means that each year, a fixed portion of the remaining franchise fee is recorded as revenue.
If a Crave Cookies franchise location closes before the end of the 10-year term, the company recognizes any remaining unearned revenue and deferred costs into income at the time of closure. Franchise fees collected before the location opens are treated as contract liabilities, also known as deferred revenue, and are only recognized as income once the franchise location actually opens. This accounting practice ensures that Crave Cookies only recognizes revenue when it has fulfilled its obligations to the franchisee.