How does Belocal recognize revenue allocated to franchise rights and ongoing services?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 23 — RECEIPTS (FDD pages 71–242)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, the company recognizes revenue allocated to franchise rights and ongoing services by deferring it until the franchised business opens. After the business opens, Belocal recognizes this revenue on a straight-line basis over the duration of the franchise agreement. This approach ensures that revenue recognition aligns with the franchisee's access to the franchise right. Transfer fees are recognized over the contractual term of the franchise agreement.
Belocal typically promises to provide franchise rights, pre-opening services (like operational materials and training), and ongoing services (such as remedial training and access to the administration manual). Belocal considers pre-opening activities and the franchise rights and related ongoing services as two separate performance obligations. The franchise fee revenue is allocated to these obligations using a residual approach, where the value of pre-opening activities is estimated based on cost plus a margin, and the remaining amount of the initial franchise fee is assigned to the franchise rights and ongoing services.
Revenue allocated to pre-opening activities is recognized when these services are performed, but no later than the opening date. This means Belocal recognizes the revenue from these activities as they occur, ensuring it's accounted for by the time the franchise begins operations. This accounting method provides a clear and consistent way for Belocal to report its revenue, aligning it with the delivery of services and the franchisee's use of the franchise rights over the agreement's term.