According to Better Blend's 2024 Franchise Disclosure Document, deferred revenue is defined as unearned revenue that comes from the sale of new franchises and the approval of new franchisee locations. Better Blend recognizes franchise fee and development fee revenues when they have satisfied their performance obligations. Specifically, Better Blend recognizes revenue related to franchise fees over the term of the franchise agreement, as management has determined that the performance obligations are satisfied over that period. Deferred revenue was $145,000 as of December 31, 2022.

For a prospective Better Blend franchisee, this means that the initial franchise fee paid to Better Blend is not immediately recognized as revenue by the company. Instead, it is recorded as deferred revenue and recognized gradually over the life of the franchise agreement. This accounting practice aligns the revenue recognition with the services and support Better Blend provides to the franchisee over time.

This deferred revenue approach is common in franchising, as the franchisor's obligations extend beyond the initial sale of the franchise. The franchisor typically provides ongoing support, training, and brand development, which justify recognizing the franchise fee revenue over the term of the agreement. The FDD indicates that Better Blend had $145,000 in deferred revenue as of December 31, 2022, which reflects the unearned portion of franchise and development fees collected from franchisees.