Does Bombs Away allocate a portion of the initial franchise fee to training services?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The Company will first allocate the initial franchise fees and the fixed consideration, under the franchise agreement to the standalone selling price of the training services that are not brand specific and the residual, if any, to the right to access the Company's intellectual property. Consideration allocated to pre-opening activities, which are not brand specific are recognized ratably as those services are rendered. Consideration allocated to pre-opening activities included under Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' is recognized when the related services have been rendered.
The remaining franchisee fee not allocated to pre-opening activities are recorded as Unearned Revenue and will be recognized over the term of the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the company allocates a portion of the initial franchise fees to training services. Bombs Away estimates the stand-alone selling price of pre-opening activities using an adjusted market assessment approach. The company allocates initial franchise fees and fixed consideration under the franchise agreement to the stand-alone selling price of training services that are not brand specific.
This means that a portion of the initial franchise fee you pay to Bombs Away is specifically designated for training services. These training services are those that are not specific to the Bombs Away brand but provide general business information. The consideration allocated to these pre-opening activities is recognized ratably as the services are rendered.
The remaining portion of the franchisee fee that is not allocated to these pre-opening activities is recorded as Unearned Revenue. This unearned revenue will be recognized over the term of the franchise agreement, indicating that Bombs Away spreads out the recognition of this revenue over the duration of your franchise agreement.