Revenue Recognition Changes Coming for Restaurant Franchisors

In a typical contract between a restaurant franchisor and franchisee, the franchisor grants the franchisee the right to operate a restaurant using the brand name, concept, logo, food and operating system. The franchisor also typically performs several functions at the beginning of the contract, such as assistance with site selection and training of employees. During the course of the agreement, the franchisor will also undertake activities to improve the performance of the brand, such as advertising, testing new menu items and refreshing marketing materials. The franchisee will typically pay an initial franchise fee up front and royalties over the period of time during which the restaurant operates. The royalties are usually based on a percentage of the restaurant’s sales.