What are the performance obligations in the B Bops franchise contract?
B_Bops Franchise · 2025 FDDAnswer from 2025 FDD Document
follows:
Identify the contract with a customer. The Company generally considers a contract with a customer to be a signed or oral agreement to enter into a franchise agreement/contract provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances.
Identify the performance obligations in the contract. The performance obligations include the right of use of the franchise license and right to operate a B-Bop's Franchise.
Determine the transaction price. The transaction price for the Company's contracts with its customers for franchise fees consists of fixed consideration as identified in the contract. Fixed consideration includes amounts to be contractually billed to the customer and payable in cash. The Company generally invoices customers at the time both parties agree to enter into a franchise contract. Customer invoices are generally due within 30 days after issuance. The transaction price for royalty fees is determined to be 5% of gross sales of the franchise each month. The Company's contracts with customers typically do not include financing components as the period between the transfer of performance obligations and timing of payment are generally within one month.
Allocate the transaction price to the performance obligations in the contract. The Company's contracts with customers generally consist of two performance obligations, which is the right to purchase the use of the franchise license and then the right to use the license over the term of the contract.
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, both the franchisor and franchisee have specific obligations to fulfill under the franchise agreement. For B Bops, these commitments begin upon signing the franchise agreement and extend throughout its term. Initially, B Bops is obligated to assist in establishing the franchise, which includes site approval, providing construction specifications, offering a training course, granting access to the operations manual, and specifying equipment and supply purchasing details.
After the franchise is established, B Bops's obligations continue. These ongoing services include developing advertising campaigns, conducting support trips to the franchise location, providing operational assistance, updating systems or marks, and offering additional training as needed. These services are designed to support the franchisee in the successful operation of their B Bops restaurant.
For the franchisee, the performance obligations include the right of use of the franchise license and the right to operate a B-Bop's Franchise. The franchisee is granted the right to operate under the B Bops brand and utilize its established systems and trademarks. In return, B Bops receives a transaction price for royalty fees that is determined to be 5% of gross sales of the franchise each month. The initial franchise agreement typically spans 15 years, with options to renew for two additional five-year periods or one additional ten-year period, contingent upon the franchisee meeting certain conditions and requirements.
Understanding these performance obligations is crucial for prospective franchisees as it outlines the support and services they can expect from B Bops, as well as their own responsibilities in operating the franchise. This ensures both parties are aligned and aware of their commitments throughout the franchise relationship.