When is initial franchise fee income earned by All Team?
All_Team Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company maintains its books and prepares its financial statements on the accrual basis of accounting wherein revenue is recognized when earned and invoiced and expenses are recognized when incurred. Furthermore, initial franchise fee income is earned upon execution of the franchise agreement, which is nonrefundable. The Company receives royalties based upon a percentage of annual sales volume of its affiliates and franchisees. Additionally, funding and processing fees are based on a percentage of gross billings.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 33)
What This Means (2025 FDD)
According to All Team's 2025 Franchise Disclosure Document, the company recognizes initial franchise fee income upon the execution of the franchise agreement. This income is considered nonrefundable. This accounting practice is detailed within the summary of significant accounting policies. All Team also earns revenue through royalties, which are a percentage of the annual sales volume of its franchisees, and funding and processing fees, which are a percentage of gross billings.
For a prospective All Team franchisee, this means that the initial franchise fee is recognized as income by All Team as soon as the franchise agreement is signed. Because the initial franchise fee is nonrefundable, franchisees should be aware that they will not receive this fee back from All Team once the agreement is executed, regardless of whether they ever open for business.
This revenue recognition policy is a fairly standard practice in the franchise industry. Franchisors typically recognize initial franchise fees as revenue when they have fulfilled their initial obligations to the franchisee, such as providing training and site selection assistance. The nonrefundable nature of the fee is also common, as it compensates the franchisor for the resources expended in granting the franchise.