Over what period does Aerus recognize revenue from the sales of individual franchises and franchise renewals?

According to Aerus's 2025 Franchise Disclosure Document, revenue from the sales of individual franchises and franchise renewals is initially recorded as deferred revenue. Aerus recognizes this deferred revenue as actual revenue over the contractual term of the franchise agreements, which is a period of three years. This accounting practice means that Aerus does not recognize the entire franchise fee as income immediately upon receiving it. Instead, it spreads the recognition of the revenue over the life of the franchise agreement.

For a prospective Aerus franchisee, this revenue recognition policy has implications for understanding the franchisor's financial statements. The initial franchise fee paid by the franchisee contributes to Aerus's deferred revenue balance, which is then recognized as earned revenue incrementally over the three-year franchise term. This approach provides a more accurate representation of the franchisor's ongoing financial performance, aligning revenue recognition with the period during which the franchisee is operating under the Aerus franchise.

This revenue recognition method is a common practice in the franchise industry, as it reflects the ongoing support and services that the franchisor provides to the franchisee throughout the term of the agreement. By deferring the revenue recognition, Aerus demonstrates a commitment to the long-term success of its franchisees and aligns its financial interests with the duration of the franchise relationship. This can provide reassurance to potential franchisees, as it indicates that the franchisor's revenue is tied to the continued operation and success of the franchise locations.