What assumptions does Beggars Pizza make when determining transaction prices for franchise agreements?
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 transaction prices for franchise agreements. The core assumption is that franchisees will fulfill their obligations as outlined in the franchise agreement. This means Beggars Pizza expects franchisees to operate their stores according to the agreed-upon standards and procedures.
Specifically, Beggars Pizza assumes that franchise agreements will not be canceled, renewed, or modified. This suggests that the initial terms and conditions agreed upon are expected to remain constant throughout the agreement's duration. This assumption is crucial for Beggars Pizza's financial planning and revenue projections, as it provides a stable basis for forecasting income from franchise fees and royalties.
Beggars Pizza's franchise agreements include both fixed and variable components in their transaction prices. The variable component is primarily tied to royalties, which are based on a percentage of the franchisee's sales. The company recognizes this variable consideration based on the actual amounts incurred each month, reflecting the real-time performance of the franchise. Additionally, franchisees receive services from affiliated entities, such as marketing and commissary support, which are factored into the overall transaction and revenue recognition process. These assumptions and practices allow Beggars Pizza to project revenue and manage financial obligations related to its franchise operations.