What convention is used to recognize initial franchise fees for Bens Soft Pretzels?
Bens_Soft_Pretzels Franchise · 2025 FDDAnswer from 2025 FDD Document
each (for a total term of 21 years). Each option to renew includes an additional fee and is considered a separate performance obligation.
The Company recognizes the initial franchise fee on a straight-line basis using a mid-month convention over the initial term of the franchise or license agreement starting with the opening of the location. The opening is considered to take place when the Company has performed substantially all of the initial services required in the franchise or license agreement and when the franchisee or licensee begins to benefit from the rights included in the franchise or license agreement. Incidental items that are immaterial in the context of the contract are recognized as expense.
Royalty Fee Revenue – Franchises are required to pay the Company a royalty fee based on a percentage of its gross sales, excluding sales tax, pre-approved coupons, and redemption of loyalty rewards. Revenue is recognized on a weekly basis based on the prior week's sales. A receivable is recorded at year end based on average sales per day for the week that spans year end. Royalty fees are due on a weekly basis.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, Bens Soft Pretzels recognizes initial franchise fees on a straight-line basis using a mid-month convention over the initial term of the franchise agreement. This means that instead of recognizing the entire franchise fee as revenue upfront, Bens Soft Pretzels spreads the recognition of the revenue evenly over the duration of the franchise agreement, starting from the month the location opens.
For a prospective franchisee, this accounting practice means that Bens Soft Pretzels does not immediately record the entire initial franchise fee as revenue. Instead, a portion of the fee is deferred and recognized gradually over the term of the agreement. The FDD states that the opening of the location is considered the point at which Bens Soft Pretzels has performed substantially all initial services and the franchisee begins to benefit from the franchise rights.
As of December 31, 2024, 2023, and 2022, the deferred portion of initial franchise fee revenue totaled $332,002, $300,294, and $347,652, respectively. This deferral is a common accounting practice in franchising, aligning revenue recognition with the delivery of services and brand usage rights over time. The mid-month convention provides a practical approach to revenue recognition, especially when store openings occur throughout the month, ensuring a consistent and reasonable allocation of revenue.