How are variable lease costs treated in Bath Tune Up's financial statements?

According to Bath Tune-Up's 2025 Franchise Disclosure Document, variable lease costs, which primarily consist of property taxes, insurance, and maintenance expenses, are expensed as incurred. These expenses are recorded under 'Operating and administrative' within the Statements of Operations. Importantly, these variable costs are not included in the lease liabilities listed on the Balance Sheets. This accounting treatment means that Bath Tune-Up recognizes these costs in the period they occur rather than capitalizing them as part of the lease asset.

For a prospective Bath Tune-Up franchisee, this means that while the base rent and any fixed rent escalations are accounted for as lease liabilities, other costs like property taxes and insurance on the leased property will be treated as regular operating expenses. This distinction can affect the franchisee's financial planning and budgeting. It's crucial to understand that while the fixed lease payments contribute to the lease liability shown on the balance sheet, variable costs directly impact the operating expenses reported on the income statement.

This approach is fairly standard in accounting for leases. By expensing variable lease costs as incurred, Bath Tune-Up provides a clearer picture of its ongoing operational expenses. This method allows for a more accurate reflection of the actual costs associated with running the business during a specific period. Franchisees should pay close attention to these variable costs when projecting their own expenses, as they can fluctuate based on factors like property tax rates and insurance premiums.

In summary, Bath Tune-Up's financial statements treat variable lease costs as expenses in the period they are incurred, separate from the lease liabilities associated with fixed rent payments. This treatment aligns with standard accounting practices and provides franchisees with a transparent view of how these costs are managed and reported.