How does Cinch I.T. recognize revenue from royalties and advertising fees?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
the member. Since management did not expect the entire amount to be repaid in the next twelve months, the balance was classified as long-term on the balance sheets.
Revenues
Cinch IT, Inc., a related party, purchased a franchise from the Company. Per the franchise agreement, the franchisee pays a royalty of 5 to 7 percent of its gross sales and an advertising fee of 1.5 percent of its gross sales. During the year ended December 31, 2021, the Company collected royalty fees of $157,390 and advertising fees of $42,983 from the related party. During the year ended December 31, 2020, the Company collected royalty fees of $133,400 and advertising fees of $36,497 from the related party. At December 31, 2021 and 2020, the franchisee owed the Company $38,146 and $17,642, respectively, in advertising and royalties fees, which are included in trade rece
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, the company recognizes revenue from royalties and advertising fees paid by franchisees. Specifically, Cinch I.T., Inc., which is identified as a related party, purchased a franchise from the company. As part of the franchise agreement, this related-party franchisee pays a royalty of 5 to 7 percent of its gross sales, along with an advertising fee of 1.5 percent of its gross sales.
The document indicates that during the year ended December 31, 2021, Cinch I.T. collected $157,390 in royalty fees and $42,983 in advertising fees from this related party. In the preceding year, ending December 31, 2020, the company collected $133,400 in royalty fees and $36,497 in advertising fees. These figures demonstrate the revenue stream generated from franchise operations, even within related-party agreements.
Additionally, the FDD notes that at the end of 2021 and 2020, the related-party franchisee owed the company $38,146 and $17,642, respectively, in advertising and royalties fees. These outstanding amounts are included in trade receivables, indicating that Cinch I.T. accounts for these revenues even before they are fully collected. The company also collected annual conference fees of $3,500 from this related party during the year ended December 31, 2021, which are included in deferred revenue.