FOR IMMEDIATE RELEASE
WASHINGTON, Nov. 5— The International Franchise Association (IFA) today applauded the Financial Accounting Standards Board (FASB), the standards-setting body for public and private companies in the US, for providing franchise businesses clarity on rules and regulations that affect them.
FASB issued educational examples of revenue recognition and set a precedent by which franchises handle initial payments made by a franchisee to a franchisor.
“IFA commends the FASB for working with our members to issue educational resources that illustrate how franchise brands should recognize revenue related to initial franchise fees,” said IFA President and CEO Robert Cresanti. “This educational material will help accountants accurately apply the standard and contribute to the financial stability of franchise companies."
Members of Congress had expressed an interest in how all parties could develop an understanding of how franchisors are expected to recognize initial payments and served as a valuable voice for small businesses on this issue.
“IFA is most appreciative of the efforts of Senate Banking Committee Chairman Mike Crapo and Senate Small Business Committee Chairman Jim Risch for their efforts to encourage dialogue on this issue,” stated Cresanti. “IFA also thanks House Small Business Committee Chairman Steve Chabot and Ranking Member Nydia Velazquez for their bipartisan leadership and involvement with the FASB to better help franchise businesses grow, hire new employees, and give back to their communities.”
“Stakeholders asked us to clarify how private company franchisors should recognize certain franchise fees when the revenue recognition standard takes effect next year,” FASB Chairman Russell G. Golden added. “In response to their requests, the FASB staff prepared an educational paper that provides illustrations that should help these stakeholders successfully implement the standard.”
Prior to the release of the examples, the prevailing interpretation said the fees associated with the execution of new franchisor-franchisee licensing contracts must be recognized over the course of the relationship, instead of immediately as a one-time up-front cost. This would have had a profound impact on a franchisor’s overall valuation and credit – and in the long term would have harmed business and job growth across the franchise industry.
According to the franchise research firm FRANData, 930 brands would have been at serious risk of bankruptcy or closure within the first three years of the rule going into effect. The associated 104,098 franchise small business locations would have faced closure, causing approximately 1.1 million job losses.
Additionally, FRANData estimates that annually, without this change, up to 35,000 new franchise small businesses would not open and their resulting 364,000 jobs would not be created.
Moreover, the more than 300 start-up brands that begin to franchise each year would likely not have been able to continue their growth.
In October, a group of nearly 80 American brands sent a letter to Congress requesting this fix.
Celebrating 58 years of excellence, education, and advocacy, the International Franchise Association is the world's oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising and the more than 733,000 franchise establishments that support nearly 7.6 million direct jobs, $674.3 billion of economic output for the U.S. economy and 2.5 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees, and companies that support the industry in marketing, law, technology and business development.