If Cream purchases the franchisee's business, what accounting method is used to determine the purchase price?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
We have the option to purchase any or all of the assets of your Shop, including your Premises (if you or one of your owners or affiliates owns the Premises) upon termination or expiration of this Agreement. We have the unrestricted right to assign this option to purchase. We may exercise this option by giving you written notice within 30 days after the date of such termination or expiration. The purchase price for your Shop will be the net realizable value of the tangible assets in accordance with the liquidation basis of accounting (not the value of your Shop as a going concern). If you dispute our calculation of the purchase price, the purchase price will be determined by one independent accredited appraiser designated by us who will calculate the purchase price applying the criteria specified above. We agree to select the appraiser within 15 days after we receive the financial and other information necessary to calculate the purchase price (if you, and we have not agreed on the purchase price before then). You and we will share equally the appraiser's fees and expenses. The appraiser must complete its calculation within 30 days after its appointment. We may set off against the purchase price, and reduce the purchase price by, any and all amounts you or your owners owe us or our affiliates.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 44–51)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, if Cream exercises its option to purchase a franchisee's shop, the purchase price will be based on the net realizable value of the tangible assets, determined using the liquidation basis of accounting. This means the value is not based on the shop's potential as a continuing, profitable business. Cream has the option to purchase the assets of the shop, including the premises if the franchisee owns it, upon termination or expiration of the franchise agreement.
Cream must provide written notice of its intent to purchase within 30 days of termination or expiration of the agreement. If the franchisee disagrees with Cream's valuation, an independent appraiser designated by Cream will determine the purchase price, applying the liquidation basis of accounting. The appraiser must be selected within 15 days after Cream receives the necessary financial information, and the appraisal must be completed within 30 days of the appraiser's appointment.
The franchisee and Cream will equally share the appraiser's fees and expenses. Cream can also deduct any amounts the franchisee or their owners owe to Cream or its affiliates from the purchase price. This could significantly reduce the amount the franchisee receives.
This valuation method is less favorable to the franchisee than a valuation based on the shop's ongoing business value. Franchisees should be aware that the purchase price in this scenario will likely be lower than what they might expect if selling the business as a going concern.