How does Bumble Roofing account for royalties and advertising fund contributions given that they are considered variable consideration under GAAP?
Bumble_Roofing Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company collects royalties and advertising fund contributions ranging from 1.5% to 6.5% of a franchisee's monthly revenues. Royalties and advertising fund contributions are considered variable consideration. GAAP requires variable consideration that is to be recognized over the term of the franchise agreement to be estimated at the inception of the Franchise Agreement. Deferred revenue and a receivable would normally be recognized at the inception of the Franchise Agreement based on this estimate; however, given the nature of the business, the constraints associated with estimating these fees cannot be overcome in order to determine an estimate of the variable consideration that would not be likely to result in a significant reversal. Accordingly, as allowed by GAAP, these fees are recognized in the month in which services are performed for customers.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2025 FDD)
According to Bumble Roofing's 2025 Franchise Disclosure Document, the company addresses the accounting of royalties and advertising fund contributions, which are considered variable consideration under Generally Accepted Accounting Principles (GAAP). Bumble Roofing collects royalties and advertising fund contributions that range from 1.5% to 6.5% of a franchisee's monthly revenues.
GAAP requires that variable consideration, recognized over the franchise agreement term, be estimated at the agreement's inception. Typically, this would involve recognizing deferred revenue and a receivable based on this estimate. However, Bumble Roofing states that due to the nature of its business, it cannot accurately estimate these fees without a high risk of significant reversals later on.
Therefore, Bumble Roofing, as permitted by GAAP, recognizes these royalties and advertising fund contributions in the month when the services are actually performed for customers. This means that revenue is recorded when it is earned, aligning with the actual provision of services and reducing the risk of overestimation and subsequent revenue adjustments. This approach provides a more accurate reflection of Bumble Roofing's financial performance in each period.