Where in the C12 Group FDD can I find information regarding the recognition of franchise fees?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
counting principles generally accepted in the United States (GAAP). The financial statements were presented on a consolidated basis and all significant intercompany accounts and transactions eliminated.
Revenue Recognition: A majority of the Company's revenues are derived from franchise fees. Franchise agreements generally require the franchisee to pay 1) an initial non-refundable territory fee of $25,000 per franchise unit, 2) a prepaid marketing deposit of $10,000, 3) a training and support fee of $10,000 to $12,500, which is refundable prior to the start of training, 4) continuing fees based upon a percentage of monthly member billings ranging from 12% to 30%, and 5) a new member registration fee ranging from $300-500. Franchise agreements are renewed annually with no additional charges.
When a franchise is sold, the Company agrees to provide certain services to the franchisee, including assisting with site selection, training, reference and promotional materials and assist
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 C12 Group FDD, details about the recognition of franchise fees can be found in Item 22, specifically within 'NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES' under the 'Revenue Recognition' section. This section explains how C12 Group recognizes revenue from franchise fees.
The FDD states that C12 Group franchise agreements typically require franchisees to pay several fees: an initial non-refundable territory fee of $25,000 per franchise unit, a prepaid marketing deposit of $10,000, a training and support fee ranging from $10,000 to $12,500 (refundable before training starts), continuing fees based on a percentage of monthly member billings (12% to 30%), and a new member registration fee ranging from $300 to $500. These agreements are renewed annually without additional charges.
The document clarifies that initial territory fees are recognized as revenue by C12 Group when substantially all initial services under the franchise agreement have been completed. Continuing fees, on the other hand, are recognized as they are earned. This means C12 Group doesn't immediately recognize all initial fees as revenue but waits until they've provided the agreed-upon initial services to the franchisee. This approach is consistent with standard accounting practices, which aim to match revenue recognition with the delivery of services.