How does Best Brains recognize revenue from the sales of an individual franchise?
Best_Brains Franchise · 2025 FDDAnswer from 2025 FDD Document
uent events through the date of the audit report, which is the date the financial statements were available to be issued and is of opinion that there were no subsequent events that require specific disclosure in financial statements.
NOTE 4 - ADVERTISMENT EXPENDITURE
Corporation expenses advertising production costs as they are incurred and advertising communications costs the first time the advertising takes place. Advertising expense was $ 302,366.80. for the year ended December 31, 2023.
NOTE 5 - REVENUE RECOGNITION
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts w
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
According to Best Brains' 2025 Franchise Disclosure Document, the company recognizes revenue from individual franchise sales as performance obligations are satisfied. The initial franchise fees, collected upfront, are amortized over the life of the franchise agreement, which is generally five years. This means that Best Brains does not recognize the entire franchise fee as revenue immediately upon receiving it. Instead, they spread the recognition of this revenue over the term of the franchise agreement.
For a prospective Best Brains franchisee, this accounting practice has implications for understanding the franchisor's financial statements. The deferred franchising fee revenue, representing the franchise fees received in advance, was reported as $514,081 and $136,168 as of December 31, 2024, and 2023, respectively. This deferred revenue is amortized over a five-year period from the start of the franchisee's location.
This revenue recognition method ensures that Best Brains' reported revenue accurately reflects the services and support provided to franchisees over the duration of their agreements. The adoption of Accounting Standards Update 2020-05, effective January 1, 2019, reflects Best Brains' compliance with updated accounting standards for revenue recognition. This approach provides a more transparent view of the franchisor's financial performance, aligning revenue recognition with the delivery of ongoing services and support to its franchisees.