Under what conditions does Embassy Suites By Hilton recognize franchise termination fees?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
• Franchise termination fees are charged in connection with the termination of a franchise contract by the hotel owner. We generally recognize termination fees in the period in which the payment is received as there usually is no further service to be provided and due to the uncertainty of collection associated with the termination of the relationship with the hotel owner.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, franchise termination fees are charged when a hotel owner terminates their franchise contract. Embassy Suites By Hilton recognizes these fees as revenue in the period when the payment is received. This is because, after the franchise contract is terminated, Embassy Suites By Hilton typically does not provide any further services to the hotel owner.
Additionally, the timing of revenue recognition is influenced by the uncertainty of collecting the termination fee, given the terminated relationship with the hotel owner. This means that Embassy Suites By Hilton waits until the payment is actually received before recognizing the revenue, rather than accruing it beforehand. This approach reflects a cautious accounting practice, acknowledging the risk that the fee might not be fully collected.
For a prospective Embassy Suites By Hilton franchisee, this accounting practice highlights that termination fees are not guaranteed income for the franchisor until they are actually paid. This policy provides transparency into how Embassy Suites By Hilton accounts for these specific fees and manages the associated financial risks.