Under what circumstances does Hardees cease accruing royalties and rent revenue from franchisees?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
We record provisions for estimated credit losses on receivables when we believe our franchisees are unable to make their required payments. We cease accruing royalties and rent revenue from franchisees during the fiscal quarter in which we determine that collectibility of such amounts is not reasonably assured. There are a number of different actions we and/or our franchisees may take to resolve or mitigate franchise collection issues. These actions may include a reduction or deferral of future royalties, a reduction or deferral of future rent for which we are the landlord or the primary obligor to the landlord, or if necessary, acquiring the restaurants or terminating the franchise agreement.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, Hardees will stop accruing royalties and rent revenue from a franchisee if they determine that collecting those amounts is not reasonably assured. This determination is made during the fiscal quarter.
This means that if Hardees believes a franchisee is unlikely to pay the required royalties or rent, they will cease to record those amounts as revenue. This decision is based on Hardees's assessment of the franchisee's ability to meet their financial obligations. This can occur for a variety of reasons, such as poor sales performance, financial difficulties, or other factors that impact the franchisee's ability to pay.
Hardees and the franchisee may attempt to resolve the collection issues through several actions. These actions include possibly reducing or deferring future royalties, reducing or deferring future rent if Hardees is the landlord or primary obligor, acquiring the restaurants, or terminating the franchise agreement. These options provide Hardees with flexibility in managing potential losses and working with franchisees facing financial difficulties.
For a prospective franchisee, this policy highlights the importance of maintaining a strong financial performance and open communication with Hardees. If a franchisee experiences financial difficulties, it is crucial to proactively engage with Hardees to explore potential solutions and avoid a situation where Hardees deems the collection of royalties and rent to be unassured, which could lead to more drastic measures such as termination of the franchise agreement.