How does Chatime recognize revenues and expenses related to the marketing and promotional fund?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
Marketing and promotional fund
The Company maintains a marketing and promotional fund to collect and administer funds contributed for use in advertising and promotional programs for the benefit of franchise units. Marketing and promotional fund fees are collected from franchisees based on a percentage of franchisee gross sales. The Company has determined that it acts as a principal in the collection and administration of the marketing and promotional fund and therefore will recognize the revenues and expenses related to the marketing and promotional fund on a gross basis. The Company has determined that the right to access its intellectual property and administration of the brand fund are highly interrelated and therefore will be accounted for as a single performance obligation. As a result, revenues from the marketing and promotional fund represent sales-based royalties related to the right to access the Company's intellectual property, which are recognized as franchisee sales occur. When brand marketing fund fees exceed the related advertising fund expenses in a reporting period, marketing costs are accrued up to the amount of brand marketing fund revenues recognized.
Source: Item 23 — Receipts (FDD pages 58–262)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the company maintains a marketing and promotional fund to collect and administer fees from franchisees for advertising and promotional activities. These fees are based on a percentage of the franchisee's gross sales. Chatime considers itself the principal in managing this fund. Therefore, it recognizes both the revenues and expenses associated with the fund on a gross basis.
Chatime has determined that the right to access its intellectual property and the administration of the brand fund are highly interrelated, and thus, they are accounted for as a single performance obligation. As a result, revenues from the marketing and promotional fund are treated as sales-based royalties related to the right to use Chatime's intellectual property. These revenues are recognized as franchisee sales occur.
When the marketing fund fees collected exceed the advertising expenses in a reporting period, Chatime accrues marketing costs up to the amount of the marketing fund revenues recognized. This means that Chatime ensures that the marketing expenses are aligned with the revenues generated from the marketing fund, reflecting a conservative approach to financial reporting. This also means that Chatime recognizes revenue as the sales occur and aligns marketing costs with recognized revenue.