In California, when can Baya Bar collect initial fees from franchisees?
Baya_Bar Franchise · 2024 FDDAnswer from 2024 FDD Document
Revenue from initial franchise fees is allocated to the performance obligations in the franchise agreement that are distinct from the territory rights and symbolic intellectual property. The amount allocated to each identified performance obligation is determined using the expected cost plus a margin or fair market value approach. Revenue from initial fees is recognized when the performance obligation is satisfied and control of the good or service has been transferred to the franchisee. Unearned initial fee revenues will be recorded as non-refundable deferred revenue. Commissions and other direct costs related to unsatisfied performance obligations will be recorded as a franchise acquisition asset and are recognized as expense when the related performance obligation has been satisfied.
| 4.1 | Multi-Unit Development Fee. In consideration of the rights granted under this Agreement, |
|---|---|
| Developer shall pay Franchisor a development fee (the "Development Fee") in the amount | |
| of Dollars ($), calculated as one hundred percent | |
| (100%) of the initial franchise fee for the first Baya Bar outlet to be developed hereunder, | |
| plus a deposit equal to fifty percent (50%) of the reduced initial franchise fee for each | |
| additional outlet to be developed hereunder. For the first (1st) Baya Bar outlet to be |
developed, the initial franchise fee shall be Thirty-Five Thousand Dollars ($35,000.00). For the second (2nd) Baya Bar outlet to be developed, the initial franchise fee shall be Thirty Thousand Dollars ($30,000.00), and for the third and each subsequent Baya Bar outlet to be developed, the initial franchise fee shall be Twenty-Five Thousand Dollars ($25,000.00).
The Development Fee is fully earned at the time this Multi-Unit Development Agreement is signed and is not refundable under any circumstances. Developer shall pay the full amount of the Development Fee to Franchisor upon Developer's execution of this Agreement.
4.2 Application of Development Fee. Contemporaneous with the execution of this Agreement, Developer shall execute the initial Franchise Agreement for the first Baya Bar outlet to be established pursuant to the Mandatory Development Schedule. Developer shall receive a Thirty-Five Thousand Dollar ($35,000.00) credit from the Development Fee, which shall be applicable to the Initial Franchise Fee due under the initial Franchise Agreement as payment in full. Upon the execution of the second Franchise Agreement for a Baya Bar outlet to be developed hereunder, Developer shall receive a Fifteen Thousand Dollars ($15,000.00) credit from the Development Fee, which shall be applied as Fifty Percent (50%) payment of the Initial Franchise Fee payable pursuant to the second Franchise Agreement and Developer shall pay the balance of the Initial Franchise Fee owed. Upon the execution of each additional Franchise Agreement for outlets to be developed hereunder, Developer shall receive a Twelve Thousand Five Hundred Dollars ($12,500.00) credit from the Development Fee, which shall be applied as Fifty Percent (50%) payment to the Initial Franchise Fee payable pursuant to each such additional Franchise Agreement and Developer shall pay the balance of the Initial Franchise Fee owed.. Upon Franchisor's approval, Developer may enter into the initial Franchise Agreement or any subsequent Franchise Agreement as required under this Agreement using a newly formed entity, such as a limited liability company, corporation or partnership, for the sole purpose of entering into a Franchise Agreement and operating the Baya Bar café outlet pursuant thereto, provided that Developer shall also personally sign such Franchise Agreement as a principal.
Source: Item 23 — RECEIPTS (FDD pages 56–189)
What This Means (2024 FDD)
Based on the 2024 Baya Bar Franchise Disclosure Document, the franchisor recognizes revenue from initial franchise fees when the performance obligation is satisfied, and control of the good or service has been transferred to the franchisee. Any unearned initial fee revenues are recorded as non-refundable deferred revenue. Commissions and other direct costs related to unsatisfied performance obligations are recorded as a franchise acquisition asset and are recognized as expenses when the related performance obligation has been satisfied.
For a multi-unit development agreement, the development fee is fully earned when the agreement is signed and is non-refundable. Upon signing the multi-unit development agreement, the developer must also execute the initial Franchise Agreement for the first Baya Bar outlet. The developer will receive a $35,000 credit from the development fee, which will be applicable to the initial franchise fee due under the initial Franchise Agreement as payment in full.
For the second Baya Bar outlet, the developer receives a $15,000 credit from the development fee, which is applied as 50% payment of the initial franchise fee. The developer pays the remaining balance. For each additional outlet, the developer receives a $12,500 credit from the development fee, applied as 50% payment to the initial franchise fee, with the developer paying the remaining balance.