What primarily constitutes the advertising funds assets for Moes Southwest Grill?

According to the 2025 FDD, the advertising funds assets for Moes Southwest Grill primarily consist of accounts receivable from the franchise system and the Company SBRs (stores, bakeries, and restaurants) for contributions to the Ad Funds and Local Funds. Additionally, vendor receivables and prepayments to certain advertising and marketing vendors also constitute these assets. These Ad Funds and Local Funds are used for advertising and marketing activities to promote the Moes Southwest Grill brand. Franchisees are typically required to contribute a percentage of their revenues to these funds, as stipulated in their franchise agreements and the Company SBRs. These contributions are then used to finance advertising and marketing efforts at both the national and local levels. The Company manages these funds, ensuring they are used for approved marketing activities. The billing, collection, and subsequent distribution of Franchisee-Managed Local Funds are recorded as pass-through transactions within Advertising funds assets and Advertising funds liabilities. This means that the funds collected and distributed do not impact the company's profit and loss statement. Instead, they are treated as a balance sheet item, reflecting the flow of funds from franchisees to approved marketing activities.

For a prospective Moes Southwest Grill franchisee, understanding the composition of these advertising funds assets is crucial. It highlights that a significant portion of the advertising funds is tied to the financial health and timely contributions of other franchisees and Company SBRs. Any delays or defaults in these contributions could potentially impact the availability of funds for planned advertising and marketing campaigns. Additionally, the inclusion of vendor receivables and prepayments indicates that the advertising funds' assets are also dependent on the financial stability and performance of the advertising and marketing vendors contracted by Moes Southwest Grill. Therefore, franchisees should be aware of the potential risks associated with these dependencies and ensure that the advertising strategies are robust and adaptable to changing financial conditions.

Furthermore, the FDD clarifies that the Ad Funds and Company-Managed Local Funds transfer all cash received to a certain subsidiary that pays vendors on behalf of the Ad Funds and Company-Managed Local Funds. Outstanding amounts owed to vendors by the certain subsidiary on behalf of the Ad Funds and Company-Managed Local Funds are recorded in Accounts payable as of December 29, 2024 and December 31, 2023. This structure ensures centralized control and oversight of advertising expenditures, but it also means that franchisees have limited direct control over how these funds are spent. Franchisees should, therefore, engage with the franchisor to understand the advertising strategies and ensure that their local marketing needs are being addressed effectively. Understanding the advertising funds' assets and liabilities provides franchisees with a clearer picture of the financial mechanisms supporting the brand's marketing efforts and helps them make informed decisions about their investment.