For Card My Yard, when is the initial franchise fee revenue partially recognized?
Card_My_Yard Franchise · 2025 FDDAnswer from 2025 FDD Document
• Franchise fees – The Company has franchise agreements that predominantly cover a period of five or seven years. The Company recognizes franchise fees from independently owned and operated franchises under these agreements. Revenuesfrom franchise sales include initial fees, renewal fees, transfer fees, zip code change fees, and termination fees. Initial franchise fees are collected upon agreement execution. Transfer fees and termination fees are collected prior to agreement execution.
Fees for zip code changes and renewals are collected at the time the event occurs. In conjunction with these franchise agreements, the Company provides operating manuals, an initial set of signs, stakes and other products, and training. The Company may, but is not obligated to, provide on-site pre-opening assistance. The Company also provides payment processing and software programs, collateral merchandise, and continuing advisory services to the franchisees. Under ASC 606, the Company recognizes revenue (based on amounts consistent with market rates) upon contract execution in the amount of 50% of contract fee once the initial performance obligation related to pre-opening activities including the issuance of operating manuals, initial set up of signs, stakes, and other products, is met. The Company's ongoing performance obligations pertaining to the franchise right (the remaining 50%) is recognized on a straight-line basis over the term of the franchise agreement. Deferred revenues represent deferred initial franchise fees to be recognized over the life of the agreement. The breakdown of franchise fees recognized by type are as follows for the years ended December 31:
Source: Item 23 — RECEIPTS (FDD pages 84–259)
What This Means (2025 FDD)
According to Card My Yard's 2025 Franchise Disclosure Document, the company recognizes 50% of the initial franchise fee as revenue upon contract execution. This recognition occurs once Card My Yard meets its initial performance obligations related to pre-opening activities. These activities include providing operating manuals and the initial setup of signs, stakes, and other products to the franchisee.
The remaining 50% of the initial franchise fee, associated with the ongoing right to operate a Card My Yard franchise, is recognized on a straight-line basis over the term of the franchise agreement. This means that Card My Yard spreads the revenue recognition for this portion of the fee evenly throughout the duration of the franchise agreement, which is typically five or seven years.
Deferred revenues represent the initial franchise fees that Card My Yard will recognize over the life of the franchise agreement. This accounting practice aligns with ASC 606, which governs revenue recognition in accounting. This approach ensures that Card My Yard recognizes revenue as it fulfills its obligations to the franchisee over the entire term of the agreement, rather than recognizing the entire fee upfront.