For Big Blue Swim School, what are the direct and incremental costs principally consisting of?

According to Big Blue Swim School's 2025 Franchise Disclosure Document, the direct and incremental costs associated with the sale of franchises primarily consist of commissions. These costs are capitalized and then amortized over the term of the franchise agreement. This means that Big Blue Swim School spreads the expense of these costs over the life of the agreement rather than recognizing them all at once.

For a prospective Big Blue Swim School franchisee, this indicates that the franchisor incurs significant costs in securing franchise agreements, mainly through commissions paid to franchise sales representatives. The capitalization and amortization of these costs reflect an accounting practice that aligns the expense with the revenue generated over the life of the franchise agreement.

It's also noted that if costs are paid related to Development Right Agreements (DRAs) and no signed franchise agreement is received, these costs are deferred until the franchise agreement is executed. This means Big Blue Swim School doesn't recognize these costs until a deal is finalized. This accounting treatment provides a clearer picture of the true costs associated with successful franchise sales.