According to Belocal's accounting practices, when is revenue recognized?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Under this method, revenue is recognized when earned and expenses are recognized as incurred.
Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as operational materials and functional training courses, and ongoing services such as remedial training and access to our administration manual. The Company considers certain pre-opening activities and the franchise rights and related ongoing services to represent two separate performance obligations. The franchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performance obligations related to certain pre-opening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initial franchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed, no later than the opening date. Revenue allocated to franchise rights and ongoing services is deferred until the Franchised Business opens, and is recognized on a straight line basis over the duration of the franchise agreement as this ensures that revenue recognition aligns with the franchise is access to the franchise right. Transfer fees are recognized over the contractual term of the franchise agreement.
Pursuant to a services agreement with N2 Company, the Company provides sales services which includes the management of the system of selling print advertising by its Franchised Businesses in one or more of N2 Company's publications. This revenue is recognized as earned.
All costs associated with advertising and marketing are expensed in the period incurred.
Source: Item 23 — RECEIPTS (FDD pages 71–242)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, the company uses the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States. This means Belocal recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands. This is a standard accounting practice that provides a more accurate picture of a company's financial performance over time.
Belocal recognizes revenue from franchise fees based on performance obligations. The company typically provides franchise rights, pre-opening services (like operational materials and training), and ongoing support. Belocal considers pre-opening activities and franchise rights as separate performance obligations. Revenue allocated to pre-opening activities is recognized when these services are performed, but no later than the opening date of the franchise. Revenue allocated to franchise rights and ongoing services is deferred until the franchise opens and is then recognized on a straight-line basis over the term of the franchise agreement. Transfer fees are recognized over the contractual term of the franchise agreement.
Belocal also generates revenue from sales services provided to N2 Company, which involves managing the sale of print advertising by Belocal franchisees in N2 Company publications. This revenue is recognized as it is earned. Advertising and marketing costs are expensed in the period they are incurred. This means that Belocal does not defer these costs but recognizes them immediately, which can impact the company's profitability in the short term.