What are the implications if collection is not reasonably assured for All Team under ASC 606?

According to All Team's 2025 Franchise Disclosure Document, the company adopted ASC 606, Revenue from Contracts with Customers, in 2019. This accounting standard impacts how All Team recognizes revenue. Specifically, All Team recognizes revenue when services are provided, there is persuasive evidence of an arrangement, the price is fixed, and collection is reasonably assured.

The key implication here is that if All Team cannot reasonably assure that it will collect payment for its services, it should not recognize the revenue. This means that the company must have a reasonable expectation of receiving payment from its customers (franchisees and affiliates) before recording the revenue in its financial statements. This policy affects initial franchise fees, royalties (based on a percentage of annual sales volume), and funding/processing fees (based on a percentage of gross billings).

For a prospective All Team franchisee, this accounting policy indicates that All Team's reported revenue is based on services for which they expect to be paid. It also suggests that All Team assesses the creditworthiness of its franchisees and affiliates. This may involve evaluating their financial stability and payment history to determine the likelihood of collecting payments. If a franchisee is struggling financially and has a history of late payments, All Team may not recognize revenue from that franchisee until payment is more certain. This policy ensures that All Team's financial statements accurately reflect its financial performance and position.