How does Boulder Designs recognize revenue from franchise operations?
Boulder_Designs Franchise · 2025 FDDAnswer from 2025 FDD Document
panying financial statements.
Notes to Financial Statements (Continued)
(1) Summary of Significant Accounting Policies (continued)
(h) Income Taxes (continued)
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.
(i) Revenue Recognition
The Company recognizes revenue for the amount of consideration to which it is expected to be entitled as the transfer of promised goods or services are provided to customers.
Franchise revenues consist primarily of royalties, initial and successor franchise fees, transfer fees, and other fees and commission income. The Company's primary performance obligations under the franchise license is providing certain pre-opening services and granting certain rights to use the Company's intellectual property. All other services the Company provides under the franchise agreement are highly interrelated, not distinct within the contract, and therefore accounted for as a single performance obligation, which is satisfied by granting certain rights to use intellectual property over the term of each franchise agreement.
Royalties are calculated as a percentage of franchise monthly dues and annual fees over the term of the franchise agreement. Initial and successor franchise fees are payable by the franchisee upon signing a new franchise agreement or successor franchise agreement, and transfer fees are paid to the Company when one franchisee transfers a franchise agreement to a different franchisee. The franchise royalties represent sales-based royalties that are related entirely to the performance obligation under the franchise agreement and are recognized as franchise sales occur.
The Company allocates a portion of the initial franchise fee to pre-opening services, which is recognized as revenue once those services are provided. The remaining initial fee and successor franchise fees, as well as transfer fees, are recognized as revenue on a straight-line basis over the term of the respective franchise agreement.
The Company sells and delivers equipment purchased from third-party equipment manufacturers to U.S. based franchisee-owned stores.
Source: Item 23 — RECEIPT (FDD pages 50–217)
What This Means (2025 FDD)
According to Boulder Designs' 2025 Franchise Disclosure Document, the company recognizes revenue based on the transfer of goods or services to customers, aligning with the consideration they expect to receive. Boulder Designs' franchise revenues primarily come from royalties, initial and successor franchise fees, transfer fees, and other fees and commission income. The core obligation of Boulder Designs is providing pre-opening services and granting rights to use their intellectual property. All services are considered a single performance obligation, which is satisfied by granting rights to use intellectual property over the franchise agreement term.
Royalties, calculated as a percentage of franchise monthly dues and annual fees, are recognized as franchise sales occur. Initial and successor franchise fees are paid upon signing agreements, while transfer fees are paid when a franchise agreement is transferred. Boulder Designs allocates a portion of the initial franchise fee to pre-opening services, recognizing it as revenue once those services are provided. The remaining initial fee, successor franchise fees, and transfer fees are recognized on a straight-line basis over the term of the respective franchise agreement.
Boulder Designs also generates revenue from selling and delivering equipment from third-party manufacturers to franchisee-owned stores. This revenue is recognized upon the transfer of control, typically when the equipment is delivered to the customer. This occurs when the customer obtains physical possession, legal title is transferred, they assume ownership risks and rewards, and an obligation to pay is created. Franchisees are charged for freight costs, with freight revenue included in equipment revenue and freight costs recorded within the cost of equipment and supplies. All revenue amounts are recorded net of applicable sales tax.