What was the revenue recognized at a point in time for Bens Soft Pretzels?
Bens_Soft_Pretzels Franchise · 2025 FDDAnswer from 2025 FDD Document
4 Advertising Fund Fees | Income $ 7,480 45,126 $ 52,606 Other Income | $ 1,203,880 45,126 $ 1,249,006 Total |
Performance obligations
Performance obligations related to royalties, advertising fund fees, and other income, are satisfied at a point in time which signifies when the revenue is earned and recognized. Royalties and advertising fund fees are collected weekly from the bakeries.
Management has determined that the opening of a franchise is when substantially all of the initial services required by the franchise agreement are completed and when the related benefits to be derived from the rights provided by the franchise agreement begin. Therefore, the single performance obligation of providing a right to use the intellectual property over a period of time begins with the opening of a franchise and is satisfied evenly over the initial term of the franchise agreement. Franchise fees are typically required to be paid upon the signing of a franchise agreement. However, at times, management allows franchise owners to pay over a period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, Bens Soft Pretzels recognizes revenue from royalties, advertising fund fees, and other income at a point in time. This means that Bens Soft Pretzels recognizes the revenue when it is earned. Royalties and advertising fund fees are collected weekly from the bakeries. These fees are based on a percentage of each bakery's gross sales, excluding sales tax, pre-approved coupons, and redemption of loyalty rewards. A receivable is recorded at year end for royalties and advertising fund fees earned but not received.
For a prospective franchisee, this means that a portion of their gross sales will be allocated towards royalties and advertising fees, which Bens Soft Pretzels recognizes as revenue at the time the sales occur. The franchisee should be aware that these fees are calculated weekly and that any outstanding amounts at the end of the year will be recorded as a receivable for Bens Soft Pretzels.
Initial franchise fees, in contrast, are recognized over time. Bens Soft Pretzels recognizes initial franchise fees on a straight-line basis over the initial term of the franchise agreement, starting when the location opens. The opening of a franchise signifies when substantially all initial services required by the franchise agreement are completed and when the related benefits from the rights provided by the franchise agreement begin. This approach to revenue recognition is compliant with accounting standards, specifically ASC 606, which governs how companies recognize revenue from contracts with customers.