How does All States M.E.D. recognize its franchise revenues?
All_States_M_E_D Franchise · 2024 FDDAnswer from 2024 FDD Document
c) Franchise Revenues
Income is principally comprised of revenues earned by the Company as part of the franchise sales to customers. Additional revenues earned by the Company are expected from initial franchise fees as well as royalties collected from franchisees.
The Company recognizes its franchise revenues in accordance with Statement of Financial Accounting Standards ASC 606, which allows that franchise fees from franchise sales be recognized, net of an allowance for uncollectible amounts, if the initial "franchise fee" is distinct from the franchise license. A portion of the initial franchise fee is allocated to certain distinct performance obligations and is recognized as revenue when the Company has determined it has provided substantially all of its material obligations required to recognize revenue related to those distinct performance obligations. Initial franchise fees generally consist of pre-opening services determined by Franchisor that are separate and distinct (typically upfront and not brand specific) such as training, site selection, etc. and could be provided by a third party. Other components of the fee are deferred and recognized as other obligations of the agreement or conditions relating to the sale have been substantially performed or satisfied by the franchis
Source: Item 23 — RECEIPTS (FDD pages 44–174)
What This Means (2024 FDD)
According to All States M.E.D.'s 2024 Franchise Disclosure Document, the company recognizes franchise revenues in accordance with Statement of Financial Accounting Standards ASC 606. This standard allows franchise fees from franchise sales to be recognized, net of an allowance for uncollectible amounts, if the initial "franchise fee" is distinct from the franchise license. This means All States M.E.D. only recognizes revenue from franchise fees if they are separate from the actual right to operate the franchise.
A portion of the initial franchise fee is allocated to certain distinct performance obligations. This portion is recognized as revenue when All States M.E.D. has substantially fulfilled its obligations related to those specific performance aspects. These initial franchise fees generally cover pre-opening services determined by All States M.E.D. that are separate and distinct, typically upfront and not brand specific. These services, such as training and site selection, could potentially be provided by a third party.
Other components of the initial franchise fee are deferred and recognized as revenue as other obligations of the agreement or conditions relating to the sale have been substantially performed or satisfied by All States M.E.D. This means that if there are ongoing requirements or conditions tied to the franchise sale, All States M.E.D. will only recognize the revenue once those requirements are met. This approach ensures that revenue recognition is tied to the actual delivery of services and fulfillment of obligations to the franchisee.