What was Face Foundrie's method of allocating the franchise fee prior to 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, prior to 2023, Face Foundrie allocated the initial franchise fee between the pre-opening services obligation and the franchise license. The portion allocated to the franchise license was recognized over the life of the underlying franchise agreement.
This means that before 2023, Face Foundrie recognized a portion of the initial franchise fee as revenue immediately, related to the pre-opening services they provided. The remaining portion, attributed to the franchise license itself, was recognized as revenue gradually over the term of the franchise agreement, which is generally ten years according to the FDD.
Effective for the year ended December 31, 2023, Face Foundrie changed its accounting method. The company determined that the fair value of pre-opening services exceeded the initial fees received. As a result, the initial fees are now fully allocated to pre-opening services. This revenue is recognized when those pre-opening services have been completed, which typically occurs when the franchisee begins operations.