Does Better Blend collect development fees from franchisees for their initial location?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
NESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
The Company's revenue consists of fees from franchised restaurants operated by conventional franchisees. Revenue from conventional franchised restaurants include initial franchise fees, royalties based on percent of sales, marketing fees based on percent of sales, and development fees for locations the franchisee opens in addition to the initial location.
Royalties are collected on a weekly basis and are based on certain percentage as specified on the franchise agreement. Marketing fees are based on up to 1% of gross revenue. The marketing fund is used for marketing expenses related to maximizing public recognition of the Company's brand and marketing fund.
The initial franchise fees collected are determined on a franchisee-by-franchisee basis. The Company had ten franchisees under contract and four were operational as of December 31, 2023.
The Company had no contract assets and approximately $145,000 of contract liabilities as of December 31, 2022.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses were approximately $50,000 for the years ended December 31, 2023.
NOTE 2 - DEFERRED REVENUE
Deferred revenue represents unearned revenue generated from the sale of new franchises and the approval of new franchisee locations. Franchise fee and development fee revenues are recognized when performance obligations are satisfied.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 43)
What This Means (2024 FDD)
According to Better Blend's 2024 Franchise Disclosure Document, Better Blend collects development fees from franchisees for locations they open in addition to their initial location. This implies that a development fee is not required for the initial franchise location. These development fees, along with initial franchise fees, royalties, and marketing fees, contribute to Better Blend's revenue from conventional franchised restaurants.
For a prospective Better Blend franchisee, this means they should not expect to pay a development fee for their first location. However, if they plan to expand and open additional Better Blend locations, they will likely incur development fees at that time. The initial franchise fees are determined on a franchisee-by-franchisee basis.
It is important to note that these development fees are considered unearned revenue until Better Blend satisfies its performance obligations. Once these obligations are met, the revenue is recognized over the term of the franchise agreement. As of December 31, 2022, Better Blend had $145,000 in deferred revenue, which includes franchise and development fees.