What is the treatment of deferred costs when a Crave Cookies franchise location closes early?
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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies's 2025 Franchise Disclosure Document, a portion of the initial franchise fee is recognized as revenue over the expected life of the franchise agreement, which is typically 10 years. Approximately 80% of the initial franchise fee is recognized upon the franchise opening after the completion of pre-opening training and other services. The remaining portion is recognized over the 10-year term.
If a Crave Cookies franchise location closes before the end of this 10-year period, the company will recognize any remaining unearned revenue and deferred costs as 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 means that Crave Cookies recognizes revenue and expenses related to the franchise fee in alignment with the service period. If the franchise agreement is terminated early, Crave Cookies adjusts its financial statements to reflect the actual service period. This is a standard accounting practice that ensures revenue recognition matches the delivery of services over the franchise term.