When does Beauty Bungalows recognize revenue after satisfying a performance obligation?

According to Beauty Bungalows' 2025 Franchise Disclosure Document, the company recognizes revenue when it has fulfilled its performance obligations by transferring control of the goods or services to the franchisee. This aligns with the core principle of recognizing revenue when promised goods or services are transferred to customers, reflecting the consideration expected to be received.

Specifically, Beauty Bungalows identifies performance obligations, determines the contract price for each, and allocates the transaction price accordingly. For instance, revenues from initial fees are allocated to performance obligations distinct from territory and license rights, such as training, opening support, marketing assistance, and franchisee acquisition. The revenue from these initial fees is recognized when the specific performance obligation is satisfied, and control of the goods or service has been transferred to the franchisee.

Performance obligations typically satisfied by the opening of the franchised business are considered earned during the period from contract execution to the business opening, generally within one year. However, unearned initial fee revenues from franchisee acquisition and acceptance are recorded as deferred nonrefundable revenue and recognized over the contract term, which is currently 10 years from the franchise's opening. Similarly, incremental costs of obtaining a franchise agreement related to unsatisfied performance obligations are recorded as a franchise acquisition asset and recognized as cost of sales over the same 10-year period. This approach ensures that revenue recognition is tied to the actual delivery of services and transfer of control to the franchisee over the life of the agreement.