When does Crisp & Green recognize the initial franchise fees as revenue?
Crisp_Green Franchise · 2024 FDDAnswer from 2024 FDD Document
isee fails to open within a prescribed time period and marketing fees equal to 2% of gross sales. Royalties, including franchisee contributions to marketing fees, are calculated as a percentage of sales over the term of the franchise agreement. The franchise agreement royalties, inclusive of marketing fee contributions, represent sales-based royalties that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchisee store level sales occur. Royalties and marketing fees are collected monthly.
Franchise Fees
The Company requires the entire nonrefundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of ten years from the date a store opens. Initial franchise fees are recognized at the date the franchise opened upon incurring pre-opening service costs equal to, or in excess of, the initial franchise fees. Any remaining revenues will be recognized ratably on a straight-line basis over the term of the franchise agreement. The Company's services under the franchise agreement include: training of franchisees and staff, site selection, the right to use trademarks and proprietary information, and ongoing operations support.
Source: Item 23 — RECEIPTS (FDD pages 66–252)
What This Means (2024 FDD)
According to Crisp & Green's 2024 Franchise Disclosure Document, the company requires the entire nonrefundable initial franchise fee to be paid upon the execution of the franchise agreement. This agreement typically has an initial term of ten years from the date the store opens. Crisp & Green recognizes these initial franchise fees as revenue when the franchise opens, provided that the company has already incurred pre-opening service costs that are equal to or exceed the initial franchise fees.
If Crisp & Green's pre-opening service costs are less than the initial franchise fee, the remaining revenue is recognized ratably on a straight-line basis over the term of the franchise agreement. The services provided by Crisp & Green include training of franchisees and staff, site selection assistance, granting the right to use trademarks and proprietary information, and providing ongoing operational support.
Since the services provided by Crisp & Green are highly interrelated with the franchise license, they are considered a single performance obligation. This means that the revenue recognition is tied to the fulfillment of these combined services over the life of the franchise agreement. Franchisees also have the option to renew their franchise agreement at the end of the initial term, which involves paying a nonrefundable renewal fee similar to the initial franchise fee.