What happens to the initial franchise fees Face Foundrie receives after December 31, 2023?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
Prior to 2023, the Company allocated the franchise between the pre-opening services obligation and the franchise license (recognizing the amount allocated to the license over the life of the underlying agreement). Effective for the year ended December 31, 2023, the Company has determined that the fair value of pre-opening services exceeds the initial fees received; as such, the initial fees are allocated to the pre-opening services, which are recognized as revenue when those pre-opening services have been completed (generally upon commencement of operations).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the company changed its policy regarding initial franchise fees starting December 31, 2023. Before this date, Face Foundrie allocated the initial franchise fee between pre-opening services and the franchise license, recognizing the portion allocated to the license over the agreement's life.
However, effective for the year ending December 31, 2023, Face Foundrie determined that the fair value of the pre-opening services it provides exceeds the initial franchise fees received. As a result, the company now allocates the entire initial franchise fee to pre-opening services.
This means that Face Foundrie recognizes the initial franchise fee as revenue only when those pre-opening services have been completed, which typically occurs when the franchisee commences operations. This change in accounting policy could impact how Face Foundrie's financial performance is reported and understood, as it defers revenue recognition until the pre-opening services are delivered.