In what month does Bumble Roofing recognize royalties and advertising fund contributions from franchisees?
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 recognizes royalties and advertising fund contributions in the month that services are performed for customers. This is because these payments are considered variable consideration, and due to the nature of the business, Bumble Roofing cannot accurately estimate these fees in advance.
For a prospective Bumble Roofing franchisee, this means that royalty and advertising fund contributions, which range from 1.5% to 6.5% of monthly revenues, are recorded as revenue by the company in the same month that the franchisee provides roofing services. This approach is allowed under Generally Accepted Accounting Principles (GAAP) because the constraints associated with estimating these variable fees cannot be overcome.
This accounting practice ensures that Bumble Roofing's financial statements accurately reflect the revenue earned from royalties and advertising contributions in each specific month. It also means that franchisees are only responsible for these payments in the months they are actively providing services and generating revenue.