Are the development fees and franchise fees for a Noodles & Company franchise refundable?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants' sales occur. Development fees and franchise fees, portions of which are collected in advance, are nonrefundable. The Company has determined that the initial franchise services are not distinct from the continuing rights or services offered during the term of the franchise agreement and should be treated as a single performance obligation; therefore, such fees are recognized in income ratably over the term of the related franchise agreement or recognized upon the termination of the agreement between the Company and the franchisee.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, development fees and franchise fees are generally nonrefundable. Specifically, these fees are collected in advance. Noodles & Company recognizes these fees as revenue ratably over the term of the franchise agreement. However, if the agreement between Noodles & Company and the franchisee is terminated, the remaining portion of the fees are recognized at that time.
This policy means that a prospective Noodles & Company franchisee should be aware that the initial investment in these fees is at risk. If the franchisee decides not to proceed with opening a location or if the franchise agreement is terminated early, they will not receive a refund of the development or franchise fees. This is a standard practice in the franchise industry, as these fees compensate the franchisor for the initial services and rights granted to the franchisee.
It's important for potential franchisees to carefully consider their financial situation and business plan before entering into a franchise agreement with Noodles & Company, given the nonrefundable nature of these fees. Understanding the terms and conditions under which these fees are earned and recognized as revenue by Noodles & Company can help franchisees make informed decisions and manage their investment effectively.