When does Better Blend recognize franchise fee and development fee revenues?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
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BETTER BLEND FRANCHISING, LLC NOTES TO FINANCIAL STATEMENT
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. Management determined that performance obligations related to franchise fees are satisfied over time and revenue is reco
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 43)
What This Means (2024 FDD)
According to Better Blend's 2024 Franchise Disclosure Document, the company recognizes franchise fee and development fee revenues when performance obligations are satisfied. For franchise fees, Better Blend recognizes the revenue over the term of the franchise agreement, indicating that the revenue is earned gradually as the franchisee operates under the Better Blend brand. This means that the initial franchise fee is not fully recognized as revenue immediately upon payment. Instead, it is deferred and recognized over the life of the franchise agreement.
This approach to revenue recognition is common in franchising, as the franchisor's obligations extend throughout the term of the agreement, providing ongoing support and brand usage rights. The deferred revenue, representing unearned revenue from franchise sales and new location approvals, was reported as $145,000 as of December 31, 2022.
For a prospective Better Blend franchisee, this accounting practice means that Better Blend's reported revenue in any given period may not fully reflect the initial fees collected from new franchisees. Instead, it reflects the portion of those fees that have been earned over time. This can provide a more accurate picture of the company's financial performance and stability.