Over what period does Pearce Bespoke recognize deferred commissions as an expense?

According to Pearce Bespoke's 2025 Franchise Disclosure Document, deferred commissions, which are commissions paid on the sale of a franchise, are capitalized as an incremental cost of the franchise agreement. Pearce Bespoke recognizes these commissions as an expense over the life of the franchise agreement. This accounting treatment follows the guidance of ASC 340-40, "Other Assets and Deferred Costs - Contracts with Customers."

In simpler terms, when Pearce Bespoke pays a commission for selling a franchise, it doesn't immediately record the entire commission as an expense. Instead, it treats the commission as an asset and spreads out the expense over the duration of the franchise agreement. This approach aligns the expense with the revenue generated from that franchise over time.

For a prospective Pearce Bespoke franchisee, this accounting practice means that the franchisor is spreading the cost of acquiring new franchisees over the long term. The FDD also states in Note 2 that the initial fees are recognized as revenue over the term of the initial franchise agreement, which is ten years. This suggests that the "life of the franchise agreement" is ten years. This can provide a more accurate picture of the company's profitability by matching the costs with the related revenues.