When does Annex Brands recognize revenue associated with pre-opening services?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's performance obligations under its franchise agreements include pre-opening services, continuing licensing rights for the Company's intellectual property, and certain other ongoing services over the term of the franchise agreement. Preopening services which are distinct within the contract include (i) location selection and brokerage services, (ii) grand opening advertising assistance, and (iii) initial training provided to the franchisee, among other items. The Company accounts for all pre-opening services as a single performance obligation. Fees associated with pre-opening services are recognized as revenue upon the completion of training to the franchisee, which is when the Company has completed such services.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands's 2025 Franchise Disclosure Document, the company recognizes revenue from pre-opening services upon completion of training to the franchisee. Annex Brands considers pre-opening services as a single performance obligation. These services include location selection and brokerage, grand opening advertising assistance, and initial training.
This means that Annex Brands does not recognize the revenue incrementally as each pre-opening service is delivered. Instead, all revenue associated with these services is recognized at one time, specifically when the franchisee completes their initial training. This accounting practice is important for prospective franchisees to understand, as it aligns the franchisor's revenue recognition with a key milestone in the franchise setup process.
For a potential Annex Brands franchisee, this revenue recognition policy indicates that the initial franchise fee, which covers these pre-opening services, is fully earned by Annex Brands once the franchisee completes training. Therefore, if a franchisee terminates the agreement before completing training, they may be entitled to a refund of a portion of the initial franchise fee, depending on the terms outlined in the franchise agreement. It is important to carefully review the franchise agreement to understand the conditions under which refunds are provided.