What was the royalty receivable-contract revenue for Beggars Pizza in 2023?
Beggars_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
respectively.
1. Summary of Significant Accounting Policies (cont'd)
Revenue Recognition (cont'd)
The Company records royalty revenue based on 5 percent of gross sales or $500 per month, whichever is higher, over time. Royalty revenue for the years ended December 31, 2024 and 2023, was $1,486,410 and $1,561,237, respectively.
The Company has obligations to provide franchisees with the franchise rights to operate a Beggars Pizza store, and to assist with site selection, training, preparing and distributing operating manuals and menus, and with conducting inspections under their quality control program. The Company has elected the practical expedient to account for the pre-opening services provided to franchisees as distinct from the franchise license and recognize pre-opening services as a single performance obligation. Therefore, the initial franchise fee for each agreement is allocated to each individual franchise and recognized at a point in time when a new franchise location opens. Renewal fees are recognized at a point in time when renewal performance obligations are completed. Income for royalties are recognized over the term of the respective franchise agreement as the underlying sales occur.
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 franch
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, the company recorded royalty revenue of $1,561,237 for the year ending December 31, 2023. This royalty revenue is based on either 5 percent of gross sales or $500 per month, whichever is higher. Beggars Pizza recognizes this royalty income over the term of the respective franchise agreement as the underlying sales occur.
This means that a prospective Beggars Pizza franchisee will contribute to this revenue stream through their sales. The royalty payment is a continuous obligation, calculated monthly, and is a significant factor in the ongoing costs of operating a Beggars Pizza franchise. Franchisees should carefully consider their projected sales volume to understand how this royalty structure will impact their profitability.
It is important to note that the FDD also mentions an allowance for credit losses related to royalty receivables. For the years ending December 31, 2024 and 2023, the allowance for credit losses was $10,000. This indicates that Beggars Pizza anticipates some franchisees may not be able to meet their royalty obligations, and they account for this possibility in their financial statements. Franchisees should maintain open communication with Beggars Pizza regarding any financial difficulties to explore potential solutions and avoid falling into arrears.