What assumptions does Beggars Pizza make when determining transaction prices?
Beggars_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for providing franchisees with the franchise rights to operate a store. To determine the transaction price, the Company considers its customary business practices and the terms of the underlying agreement. For the purpose of determining transaction prices, the Company assumes performance obligations will be satisfied as promised in accordance with franchise agreements and that agreements will not be canceled, renewed or modified. The Company's franchise agreements with franchisees have transaction prices that contain a fixed and variable component. Variable consideration includes revenue related to royalties, as the transaction price is based on the franchisees sales. The variable consideration is recognized based on the actual amounts incurred each month. Franchisees receive additional services such as marketing and commissary needs, which are provided by affiliated entities as allowed by the franchise agreement. Marketing fees totaling 1% of the franchisee weekly sales are paid by franchisees directly to Beg Adv, LLC. Commissary stores at each franchisee are ordered and fulfilled with Begcom, LLC.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, the company makes specific assumptions when determining the transaction prices related to its franchise agreements. Beggars Pizza considers its customary business practices and the terms outlined in the franchise agreement to determine the transaction price, which is the amount they expect to receive in exchange for granting franchise rights.
Specifically, Beggars Pizza assumes that all performance obligations will be satisfied as promised within the franchise agreements. This means they expect to provide the agreed-upon services, such as site selection assistance, training, and operational support, and that franchisees will fulfill their obligations as well.
Additionally, Beggars Pizza assumes that the franchise agreements will not be canceled, renewed, or modified during their term when determining transaction prices. This assumption is crucial for revenue recognition, as it allows Beggars Pizza to project income over the life of the agreement. The franchise agreements include both fixed and variable components, with the variable portion primarily consisting of royalties based on franchisees' sales. These royalties are recognized monthly based on actual sales figures.