How does Brain Balance recognize revenue from initial franchise fees?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
g fees, enrollment kits, virtual program kits, software fees, coaching, and other. The Company franchises the right to operate Brain Balance Achievement Centers. The initial term of the franchise agreement is typically 10 years, with an option to renew for a fee or transfer the franchise agreement to a new or existing franchisee, at which point a transfer or renewal fee is typically paid.
The Company has obligations to provide franchisees with the franchise rights to operate Brain Balance Achievement Centers, training, and other assistance to launch their center, as well as to provide software and technology services and brand marketing and advertising support, for which fees are charged. The Company has concluded that certain training is a separate performance obligation due to the nature of the training being non-brand specific and capable of being used by trainees in other businesses. Therefore, initial franchise fees for each agreement are allocated to certain training as described above and the franchise right for each individual franchise. The training revenue is recognized over the term of the training. The franchise right revenue is recognized over the term of the respective franchise agreement beginning on the date the location is opened. Renewal fees are recognized over time, as training and renewal services are provided at the time of the renewal. Transfer fees are recognized over time, as training is provided to the transferees at the time of transfer. Typically the fee is less than the stand-alone selling price of the training provided at the time of transfer. Income for royalties, software fees, and advertising fees is recognized over the term of the respective franchise agreement as the underlying sales occur.
When a franchise agreement is terminated voluntarily by the franchisee or due to the default of the franchisee, the Company recognizes the remaining initial franchise fee as revenue earned, as no further performance obligations need to be satisfied, and the initial franchise fee is not refundable per the franchise agreement.
Source: Item 23 — RECEIPTS (FDD pages 72–292)
What This Means (2025 FDD)
According to Brain Balance's 2025 Franchise Disclosure Document, the company recognizes revenue from initial franchise fees over time, coinciding with the services provided to the franchisee. Brain Balance allocates portions of the initial franchise fees to specific training, center opening, and grand opening services, with the allocation based on the standalone selling price of similar third-party training services. The remaining portion of the initial franchise fee is allocated to the franchise right itself.
Specifically, revenue from the training portion is recognized over the duration of the training period. The revenue associated with the franchise right is recognized over the term of the franchise agreement, which typically begins when the franchisee's location opens. This approach aligns with the general accounting principle of recognizing revenue as services are rendered or obligations are fulfilled.
However, there is an exception to this general rule. If a Brain Balance franchise agreement is terminated, either voluntarily by the franchisee or due to the franchisee's default, Brain Balance recognizes the remaining initial franchise fee as revenue immediately. This is because, upon termination, Brain Balance no longer has any further performance obligations to satisfy under the franchise agreement, and the initial franchise fee is non-refundable according to the agreement.