Why doesn't Bumble Roofing estimate and defer revenue for royalties and advertising fund contributions at the inception of the Franchise Agreement?
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 does not estimate and defer revenue for royalties and advertising fund contributions at the inception of the Franchise Agreement because of constraints in estimating these fees. Royalties and advertising fund contributions, which range from 1.5% to 6.5% of a franchisee's monthly revenues, are considered variable consideration.
Generally Accepted Accounting Principles (GAAP) requires that variable consideration, recognized over the term of the franchise agreement, be estimated at the beginning of the agreement. This would typically involve recognizing deferred revenue and a receivable based on this estimate. However, Bumble Roofing states that the nature of its business makes it impossible to accurately estimate these fees without risking significant reversals later on.
Therefore, as permitted by GAAP, Bumble Roofing recognizes these royalties and advertising fund contributions in the month when services are actually performed for customers. This means that a Bumble Roofing franchisee will only have these expenses recognized in the accounting period that the revenue is earned, rather than an estimate being applied at the beginning of the franchise term.