When are Gross Sales considered received for the purpose of calculating Azal Coffee's royalty fee?
Azal_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
"Gross Sales" means the entire amount of all of your revenues from the ownership and operation of the Franchise Business and any business at or about the Franchise Location including sales at or from the Franchise Location and outside sales and sales at events outside the Franchise Location as well as the proceeds of any business interruption insurance, whether the revenues are evidenced by cash, credit, checks, gift certificates, coupons and premiums (unless exempted by us), services, property or other means of exchange, excepting only the amount of any sales taxes
that are collected and paid to the taxing authority. You may deduct cash refunded and credit given to customers and receivables uncollectible from customers in computing Gross Sales if the cash, credit or receivables represent amounts previously included in Gross Sales for which you paid royalty fees. You may not deduct fees and other amounts taken by third-party delivery service providers. You are deemed to receive Gross Sales at the time the goods, products, merchandise, or services from which they derive are delivered or rendered or at the time the relevant sale takes place, whichever occurs first. Gross Sales consisting of property or services (for example, "bartering" or "trade outs") are valued at the prices applicable to the products or services exchanged for the Gross Sales at the time the Gross Sales are received.
Source: Item 22 — CONTRACTS (FDD page 51)
What This Means (2024 FDD)
According to Azal Coffee's 2024 Franchise Disclosure Document, gross sales are considered received at the time the goods, products, merchandise, or services from which they derive are delivered or rendered, or at the time the relevant sale takes place, whichever occurs first. This definition is important because Azal Coffee franchisees must pay a royalty fee of 5% of their gross sales.
This means that the royalty fee is due as soon as the sale happens or when the service is provided, not necessarily when the franchisee receives the actual payment from the customer. This could impact cash flow, as the franchisee is obligated to pay the royalty even if the customer has not yet paid for the goods or services.
For sales consisting of property or services, such as in bartering or trade-out situations, the value is determined by the prices applicable to the products or services exchanged at the time the gross sales are received. This ensures that even non-monetary transactions are accounted for when calculating the royalty fee owed to Azal Coffee.