How are operating expenses allocated from the Parent company to Bath Tune Up?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
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7. RELATED PARTY TRANSACTIONS
Parental Operating Expense Allocation
Certain operating expenses are incurred by the Parent and are allocated to the Company for services such as legal, IT, finance, marketing, and human resources. These expenses are allocated based on the percentage of overall gross profit contributed to the Parent.
The Parent allocated the following amounts which were charged to the Company's operations, with most of the expenses included in Operating and administrative expenses on the Statements of Operations for the years ended:
| Parental operating expense allocation | $ 3,716,061 | $ | 3,671,090 |
|---|
Parental Operating Leases Allocation
The Parent also leases the corporate office and training facilities and allocates a portion of its operating lease expense to the Company.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to the 2025 Bath Tune-Up FDD, certain operating expenses are incurred by Home Franchise Concepts, LLC (the Parent company) and then allocated to Bath Tune-Up. These expenses cover services such as legal, IT, finance, marketing, and human resources. The allocation is based on the percentage of overall gross profit that Bath Tune-Up contributes to its Parent.
In 2022, the Parent allocated $2,822,097 in expenses to Bath Tune-Up, which were charged to the company's operations. Most of these expenses were included in operating and administrative expenses on the statement of earnings. Additionally, the Parent leases the corporate office and training facilities and allocates a portion of its operating lease expense to Bath Tune-Up. In 2022, $207,650 was allocated to Bath Tune-Up for rent, out of a total rent expense of $2,008,423 incurred by the Parent.
For a prospective franchisee, this means that a portion of the operating expenses for services like legal, IT, and marketing will be allocated based on the gross profit contribution of Bath Tune-Up to its Parent company. The franchisee should be aware that the financial performance of the Parent company and its decisions regarding these allocations can directly impact the operating expenses reported by Bath Tune-Up. Understanding the basis for these allocations and their potential impact on profitability is crucial for assessing the financial viability of a Bath Tune-Up franchise.