When are royalties recognized as revenue by Beauty Bungalows?
Beauty_Bungalows Franchise · 2025 FDDAnswer from 2025 FDD Document
When a franchisee purchases a franchise, the Company grants the franchisee the rights to operate in a designated area and to use the proprietary methods, techniques, trade dress, trademarks, and logos ("the license"). The license is considered to be symbolic intellectual property. Revenues related to the license are continuing royalties based on a fixed percentage of gross sales of each location. These revenues will be used to continue the development of the Company's brand, the franchise system and provide ongoing support for the Company's franchisees over the term of the agreement. The royalties are billed monthly and are recognized as revenue when earned. For the years ended December 31, 2024 and 2023, there were no royalties earned.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Beauty Bungalows' 2025 Franchise Disclosure Document, royalties are recognized as revenue when earned. These royalties are based on a fixed percentage of each location's gross sales. Beauty Bungalows uses these royalties to further develop its brand and franchise system, as well as to provide ongoing support to its franchisees throughout the term of their agreements. The FDD specifies that the royalties are billed monthly.
For a prospective Beauty Bungalows franchisee, this means that the royalty fees they pay based on their gross sales are recognized as revenue by the franchisor in the month they are earned. However, the document states that for the years ending December 31, 2024, and 2023, Beauty Bungalows did not earn any royalties.
This revenue recognition policy aligns with the accrual method of accounting, where revenues are recognized when earned, regardless of when the cash is received. This is a standard accounting practice, providing a clear and consistent approach to financial reporting. Franchisees should understand that while they pay royalties monthly, Beauty Bungalows recognizes this income as it is earned, reflecting the ongoing value and support provided by the franchise system.