On what basis is B Bops royalty income recognized?
B_Bops Franchise · 2025 FDDAnswer from 2025 FDD Document
Recognize revenue when or as the Company satisfies a performance obligation. Revenues for franchise fees are recognized at a point in time, which is generally upon oral or written agreement for a franchise contract, which, at this point, right to use the franchise license passes to the customer. Management exercises judgment in determining when such performance obligations for goods have been satisfied. Revenue is also recognized over time as the royalty income per the contract is based on a percentage of gross sales of the franchise and is recognized on a monthly basis when they are earned per the agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 52–53)
What This Means (2025 FDD)
According to B Bops's 2025 Franchise Disclosure Document, royalty income is recognized over time. Specifically, B Bops recognizes royalty income based on a percentage, which is 5%, of the gross sales of the franchise. This income is recognized on a monthly basis as it is earned, according to the franchise agreement.
For a prospective B Bops franchisee, this means that the royalty fees they pay, calculated as 5% of their gross sales, are recorded as revenue by B Bops each month as the franchisee operates their business and generates sales. This aligns with the standard accounting practice of recognizing revenue when it is earned, which in this case, is as the franchisee makes sales.
This revenue recognition method provides a consistent and predictable income stream for B Bops, directly tied to the performance of its franchisees. It also reflects the ongoing support and brand usage that B Bops provides to its franchisees throughout the term of their agreements. The monthly recognition aligns the franchisor's revenue with the franchisee's sales cycle, ensuring a close relationship between the services provided and the revenue recognized.