When is the initial franchise fee revenue recognized by Bath Tune Up?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
presented in the Due from Parent balance of Member's equity on the Balance Sheets. These transactions relate to cash transfers with the Parent, net of allocated costs.
Revenue
Initial franchise fees – consist of fees paid by franchisees at the start of the franchise or area development agreement. Each of these fees are fixed and nonrefundable and are due at the time the agreement is entered into. As allowed by ASC 606 and ASC 952 for private companies, preopening services provided to a franchisee are distinct from the franchise license and are recognized as a single performance obligation. This performance obligation is considered complete and revenue recognized typically when the franchisee has completed their initial training which is normally within six months of entering into the agreement. A deferred revenue liability is recorded for deposits of initial franchise fees that have not yet been recognized in Deferred revenue on the Balance Sheets.
Royalty income – are the franchisee royalty fees that are included in the franchise agreements. The variable sales-based royalty is determined to be variable consideration because it is recognized as revenue as the related sales are earned by the franchisees. Therefore, variable sales-based royalty income is recognized in the same period the sales are generated. Sales-based fees qualify under the royalty constraint exception and do not require an estimate of future transaction price. The percentage of royalty applied on the sales varies based on franchise agreements, and may include royalty percentage de-escalation clauses whereby the royalty percentage applied on the sales generated are decreased if certain sales thresholds are obtained.
Continuing franchise fees – consist of service fees, renewal and transfer fees, and NAF fees paid by franchisees, as determined by the franchise agreements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, the company recognizes initial franchise fee revenue upon substantial performance of material contractual obligations, typically after the completion of training. This usually occurs within six months of entering into the franchise agreement. The initial franchise fees cover training, access to plans, access to vendors and company-specific pricing, area exclusivity, and the right to use Bath Tune Up's intellectual property over the term of the agreement.
Bath Tune Up collects initial franchise fees at the start of the agreement. These fees are fixed and nonrefundable. Deposits for franchise fees are recorded as deferred revenue until the obligations are fulfilled. This accounting practice aligns with the Accounting Standards Codification (ASC) 606 and ASC 952 for private companies, which allows pre-opening services to be treated as a single performance obligation separate from the franchise license.
For a prospective Bath Tune Up franchisee, this means the initial franchise fee is not fully recognized as revenue by the franchisor until the franchisee completes their initial training, which generally happens within six months of signing the agreement. Until then, the funds are held as deferred revenue. This policy provides some assurance that Bath Tune Up is incentivized to provide the promised training and support before recognizing the fee as earned revenue.