Over what period does 7 Brew recognize the initial franchise fee as revenue?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
cember 29, 2024, December 31, 2023, and December 25, 2022.
Revenue Recognition
Franchise Fees
The Company executes franchise agreements that set the terms of its arrangement with each franchisee. The standard franchise agreement requires the franchisee to pay initial, non-refundable fees of $35,000, and royalties and other continual service fees based upon a percentage of sales, as defined in the agreements.
When an individual franchise is sold, the Company agrees to provide certain services to the franchisee, including site selection, training, systems implementation and design of a quality control program. The Company has determined that these services are highly interrelated and do not contain distinct performance obligations. As such, the initial franchise fee of $35,000 is recognized as revenue over the term of each franchise agreement, which is generally 15 years and included in Franchise fees within the Statements of Operations. The portions of the initial franchise fees that have not been recognized as revenu
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 82)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, the company recognizes the initial franchise fee as revenue over the term of the franchise agreement. The standard franchise agreement requires franchisees to pay an initial, non-refundable fee of $35,000, along with royalties and other continual service fees based on a percentage of sales.
7 Brew agrees to provide services to the franchisee, such as site selection, training, systems implementation, and quality control program design. Because these services are considered highly interrelated and do not represent distinct performance obligations, the initial franchise fee of $35,000 is recognized as revenue over the 15-year term of the franchise agreement.
The portions of the initial franchise fees that have not yet been recognized as revenue are considered contract liabilities and are recorded as Deferred franchise fees on the Balance Sheets. This means that 7 Brew does not recognize the entire $35,000 upfront but rather recognizes a portion of it each year over the 15-year franchise term. This accounting practice ensures that revenue recognition aligns with the delivery of services and support to the franchisee throughout the agreement.