Over what period are Exit franchise fees amortized?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
Costs incident to the acquisition of the franchise rights for the client to operate within a designated territory are capitalized. These agreements are being amortized on a straight-line basis over their related terms ranging from eight to fifteen years and are stated at cost net of accumulated amortization. The Company's future cash flows are impacted by its ability to extend or renew agreements related to these intangible assets. Costs incident to the organization of the Company, including legal fees, were capitalized. These expenses are being amortized on a straight-line basis over a period of fifteen years and are stated at cost net of accumulated amortization.
Intangible assets are reviewed annually for impairment or when events or circumstances indicate their carrying amount may not be recoverable.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the costs associated with acquiring franchise rights are capitalized and then amortized on a straight-line basis. The amortization period for these franchise agreements ranges from eight to fifteen years. This means that Exit spreads the expense of the franchise rights over this period, rather than recognizing the entire cost upfront.
Additionally, the document mentions that costs related to the organization of the company, including legal fees, are also capitalized and amortized on a straight-line basis over a period of fifteen years. This accounting treatment allows Exit to systematically expense these costs over a defined period.
For a prospective Exit franchisee, this information is relevant for understanding how Exit accounts for its intangible assets and organizational costs. The company reviews these intangible assets annually for impairment, or when events suggest that the carrying amount may not be recoverable. This could impact the company's financial statements and, indirectly, the value of an Exit franchise.