When does Body Brain Center historically recognize initial franchise fees as revenue?
Body_Brain_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenues from franchisees consist of initial franchise fees, owner training fees, royalties, and advertising fund fees based on a percentage of each franchisee's program sales. Historically, the initial franchise fees are recognized upon opening of a center, which is when the Company has performed substantially all initial services required by the franchise agreement. Under the amendments on the Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) issued by the Financial Accounting Standard Board (FASB), the franchise right is a distinct performance obligation that transfers over time. Any portion of the initial fee that is allocated to the franchise right should be recognized over the contract term. Accordingly, the initial franchise fees and renewal fee income is recognized over the contract term. Owner training fee revenue is recognized upon the completion of a training program provided by the Company.
Royalties and advertising fund fees are recognized on a monthly basis and are based upon an agreed upon percentage of franchisees' program sales, as defined in the franchise agreement. Advertising fund fees are restricted for the purpose of marketing, sales promotion and promotional materials and are included in the accompanying balance sheets as restricted cash.
Source: Item 23 — RECEIPT (FDD pages 43–178)
What This Means (2025 FDD)
According to Body Brain Center's 2025 Franchise Disclosure Document, the company's revenue comprises sales from direct centers and receipts from franchisees. Revenues from franchisees consist of initial franchise fees, owner training fees, royalties, and advertising fund fees based on a percentage of each franchisee's program sales. Historically, Body Brain Center recognized initial franchise fees upon the opening of a center. At that time, the company had performed substantially all initial services required by the franchise agreement.
However, under the amendments on the Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) issued by the Financial Accounting Standard Board (FASB), the franchise right is a distinct performance obligation that transfers over time. Now, any portion of the initial fee that is allocated to the franchise right should be recognized over the contract term. Accordingly, the initial franchise fees and renewal fee income is recognized over the contract term. Owner training fee revenue is recognized upon the completion of a training program provided by the Company.
Royalties and advertising fund fees are recognized on a monthly basis and are based upon an agreed upon percentage of franchisees' program sales, as defined in the franchise agreement. Advertising fund fees are restricted for the purpose of marketing, sales promotion and promotional materials and are included in the accompanying balance sheets as restricted cash. Revenues from direct centers consist of membership income, private lessons and registration fees. Direct center sales are recognized when services are completed.