How does Basecamp Fitness recognize franchise fees after pre-opening performance obligations have been satisfied?
Basecamp_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's primary performance obligation under the franchise agreement is granting certain rights to use the Company's intellectual property over the term of each agreement. The Company has certain pre-opening services, including training and construction management, that are provided as part of the franchise agreement. These pre-opening activities are considered distinct from the franchise license and are therefore recognized upon opening of the franchise. The Company has elected the FASB's practical expedient related to pre-opening activities and does not analyze each separate activity as its own distinct performance obligation. The franchise fees remaining after any pre-opening performance obligations have been satisfied are recognized on a straight-line basis over the term of the respective agreement.
Source: Item 23 — RECEIPTS (FDD pages 62–248)
What This Means (2025 FDD)
According to Basecamp Fitness's 2025 Franchise Disclosure Document, the company's primary performance obligation is granting franchisees the right to use its intellectual property over the term of the franchise agreement. Basecamp Fitness provides certain pre-opening services such as training and construction management as part of the franchise agreement. These pre-opening activities are considered distinct from the franchise license and are recognized upon the opening of the franchise.
Basecamp Fitness has elected the FASB's practical expedient related to pre-opening activities and does not analyze each separate activity as its own distinct performance obligation. After satisfying any pre-opening performance obligations, the remaining franchise fees are recognized on a straight-line basis over the term of the respective franchise agreement. This means that instead of recognizing the entire franchise fee as revenue immediately, Basecamp Fitness spreads the recognition of the revenue evenly over the duration of the agreement.
For a prospective Basecamp Fitness franchisee, this accounting practice means that the initial franchise fee you pay will be recognized as revenue by Basecamp Fitness gradually over the life of your franchise agreement. This approach is common in the franchise industry, as it aligns the revenue recognition with the ongoing rights and services provided to the franchisee throughout the term of the agreement. Franchisees should be aware of this revenue recognition method, as it impacts how the franchisor's financial performance is reported.