What were the deferred contract costs for Face Foundrie in 2022?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
on expense as of December 31, 2024 is as follows:
| 2025 | $ 12,468 |
|---|---|
| 2026 | 12,468 |
| 2027 | 12,468 |
| 2028 | 4,000 |
| Total future amortization | $ 41,404 |
NOTES TO THE FINANCIAL STATEMENTS December 31, 2024, 2023 and 2022
(4) Franchise Agreements
The Company's franchise agreements generally provide for a payment of initial fees as well as continuing royalty, advertising, and technology fees to the Company based on a percentage of sales. Under the franchise agreement, franchisees are granted the right to operate a location using the Face Foundrié system for a period of ten years. Under the Company's revenue recognition policy, the Company allocates the initial franchise fee to the preopening-services obligation, which is recognized when the pre-opening-services obligation has been fulfilled (generally when the franchisee begins operations). In addition, the Company defers related contract costs such as broker commissions over the same period and records them as deferred contra
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the total deferred contract costs as of December 31, 2022, were $34,000. These costs are classified as current assets. Deferred contract costs relate to expenses like broker commissions that Face Foundrie defers and recognizes over the term of the franchise agreement, which is typically ten years.
For a prospective Face Foundrie franchisee, this indicates that Face Foundrie incurs costs, such as broker commissions, when awarding a franchise. Instead of expensing these costs immediately, Face Foundrie defers them and recognizes them over the life of the franchise agreement. The deferred contract costs are considered current assets, meaning they are expected to be realized within one year.
The fact that these costs are classified as current suggests Face Foundrie aims to align the recognition of these expenses with the revenue generated from the franchise over its ten-year term. The FDD indicates that as of December 31, 2024, there were no deferred contract costs, while in 2023, the deferred contract costs were $30,000. This fluctuation likely reflects the timing of franchise agreements and the amortization of these costs over time.
Prospective franchisees should understand that these deferred costs are part of Face Foundrie's financial management and accounting practices. While these costs do not directly impact the franchisee's initial investment, they reflect the franchisor's approach to managing expenses related to franchise development and support. Understanding these accounting practices can provide a more comprehensive view of Face Foundrie's financial health and stability.