What happens to the All County franchise fee after both parties sign the contract?
All_County Franchise · 2025 FDDAnswer from 2025 FDD Document
f the Statements of Cash Flows, cash and cash equivalents include demand deposits, time deposits, certificates of deposits, and the Company also considers all highly liquid assets purchased with an initial maturity of three months or less to be cash equivalents.
• Revenue Recognition per ASC 606
Royalty fees are a percentage of franchisees weekly gross receipts, as defined in the franchise agreement, and are recorded as revenue when earned. In accordance with ASC 952-605-25, the Company does not recognize income from sales of franchises until after all material services or conditions relating to the sale have been substantially performed or satisfied by the Company, substantially all the initial services of the Company required by the franchise agreement have been performed, and no other material conditions or obligations relating to the determination of substantial performance exist. After both parties sign the contract, the fee is non-refundable.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to All County's 2025 Franchise Disclosure Document, the franchise fee becomes non-refundable once both parties have signed the contract. However, the revenue recognition of this fee is deferred. All County recognizes the franchise fees over a 10-year term, in accordance with ASC 606. This means that while All County receives the fee upfront, it recognizes the revenue associated with it gradually over the initial term of the franchise agreement.
For a prospective All County franchisee, this means that the initial franchise fee is non-refundable once the agreement is signed. Therefore, it is crucial to conduct thorough due diligence before signing the agreement.
All County classifies franchise fees received but not yet recognized as revenue as deferred revenue, in accordance with ASC 606. This accounting practice reflects the ongoing obligations All County has to support the franchisee throughout the term of the agreement. The FDD also mentions that in California, the collection of initial fees may be deferred until All County has completed its pre-opening obligations and the franchisee is open for business, due to the Department's determination that All County may not be adequately capitalized or may rely on franchise fees to fund operations.