How are revenues for upfront franchise fees recognized by Crave Cookies?
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, 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. Crave Cookies considers the pre-opening training and services distinct from the ongoing services provided to franchisees. This means that the majority of the initial fee is earned and recognized once Crave Cookies has fulfilled its obligations related to setting up the new franchise. Franchise fees collected before the location opens are treated as deferred revenue until the opening.
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 portion is recognized on a straight-line basis, reflecting the franchisee's right to use and benefit from Crave Cookies' intellectual property over the long term. This accounting method evenly distributes the recognition of this revenue over the franchise agreement's duration.
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. This ensures that all revenue and expenses are properly accounted for, even if the franchise agreement is terminated early. In 2024, Crave Cookies recognized $710,776 in franchising fees, and $1,277,049 in franchisee deposits were deferred until revenue recognition requirements were met.