Over what period are the franchise rights for Exit amortized on a straight-line basis?
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.
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 using the straight-line method. This amortization occurs over the term of the franchise agreement, which ranges from eight to fifteen years. These intangible assets are reported at cost, net of accumulated amortization.
For a prospective Exit franchisee, this means that the initial cost of the franchise rights is not fully expensed immediately. Instead, it is spread out evenly over the life of the franchise agreement for accounting purposes. This can impact the franchisee's reported profits and tax liabilities during the early years of the franchise operation.
It's also important to note that Exit reviews these intangible assets annually for impairment. If the value of the franchise rights decreases significantly, Exit may need to recognize an impairment charge, which would further affect the company's financial statements. The company's ability to extend or renew agreements related to these intangible assets can impact future cash flows.