What obligations must Bevaris Alliance substantially perform before recognizing the initial franchise fee?
Bevaris_Alliance Franchise · 2024 FDDAnswer from 2024 FDD Document
States of America.
Cash consists of cash and money market funds which are considered to be cash or cash equivalents.
Deferred Franchise Development Costs. Costs incurred in connection with the development of the franchise concept, offering documents and operations manuals have been deferred. The costs are being amortized using the straight-line method over the 5-year estimated useful life of the asset. Such amortization will begin when franchise sales commence.
Initial franchise fees and royalties. Initial franchise fee is recognized when the obligations required by the franchise agreement has been substantially performed by the Company which is when the franchisee begins operating the franchised business. Initial franchise fees is $5,000 for the first franchise, $3,750 for the second franchise and $
Source: Item 23 — RECEIPT (FDD pages 22–88)
What This Means (2024 FDD)
According to Bevaris Alliance's 2024 Franchise Disclosure Document, the company recognizes the initial franchise fee when it has substantially performed its obligations under the franchise agreement, which occurs when the franchisee begins operating their Bevaris Alliance franchised business. The initial franchise fee is $5,000 for the first franchise, $3,750 for the second, and $2,500 for each subsequent franchise.
Bevaris Alliance's obligations include site selection, providing operations manuals and marketing plans, maintaining a company-sponsored internet site, offering initial training, and delivering other services necessary for the franchisee to start operations. Bevaris Alliance considers these pre-opening services as a single performance obligation, as allowed by accounting standards.
For a prospective Bevaris Alliance franchisee, this means that the initial franchise fee is not recognized as revenue by Bevaris Alliance until the franchisee is actually up and running. This arrangement aligns the franchisor's revenue recognition with the franchisee's commencement of business, ensuring that Bevaris Alliance has fulfilled its initial support and training responsibilities before recognizing the fee. This is a fairly standard practice in franchising, as it ties the franchisor's compensation to the successful launch of the franchisee's business.