How does Chem Dry recognize royalty income and monthly franchise fee income?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
the balance of the Initial License Fee. The Business Note is payable whether or not this Agreement terminates and is not subject to any claim, set off or defenses arising under this Agreement. CDI may assign, pledge or transfer the Business Note to a third party without notice to FRANCHISEE.
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- Upon execution of this Agreement by CDI, the Initial License Fee shall be deemed fully earned and non-refundable.
B. MONTHLY FRANCHISE FEE
- FRANCHISEE agrees to pay CDI a continuing, non-refundable monthly franchise fee (the "Monthly Franchise Fee") in the amount as set forth on the Summary Page to this Agreement, beginning on the tenth (10th) day of either (A) the fourth (4th) month after FRANCHISEE completes initial training, (B) if FRANCHISEE is an existing Chem-Dry franchisee, the fourth (4th) month
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the initial license fee is deemed fully earned and non-refundable upon the execution of the Franchise Agreement by CDI. This means Chem Dry recognizes the initial license fee as income at that point, regardless of whether the franchisee's business is yet operational. This is a common practice in franchising, as the fee is for the right to use the Chem Dry brand and system.
The Chem Dry franchisee is obligated to pay a continuing, non-refundable monthly franchise fee. The monthly franchise fee payment starts on the tenth day of the fourth month after completing initial training, or for existing franchisees, the fourth month after the agreement's effective date. In the case of a transfer or succession of an existing Chem-Dry business, the monthly fee starts on the tenth day of the month after the agreement's effective date.
Because the monthly franchise fee is non-refundable, Chem Dry likely recognizes this revenue each month as it is earned. This is a standard approach, as it aligns revenue recognition with the ongoing services and brand support Chem Dry provides to its franchisees. The franchisee should note the specific payment start date applicable to their situation, as this determines when the monthly fees begin accruing.