How are royalties and advertising fees recognized as revenue for Cinch I.T.?

According to Cinch I.T.'s 2024 Franchise Disclosure Document, the company recognizes royalties and advertising fees as revenue based on a percentage of sales, and these are recognized at the same time that the underlying sales occur. This means that as a Cinch I.T. franchisee generates sales, a percentage of those sales is immediately recorded as revenue for the franchisor in the form of royalties and advertising fees.

For a prospective franchisee, this accounting practice means that Cinch I.T. recognizes its income from these fees concurrently with your sales. The FDD also mentions that during the year ended December 31, 2021, Cinch I.T. collected royalty fees of $157,390 and advertising fees of $42,983 from a related party, and during the year ended December 31, 2020, royalty fees of $133,400 and advertising fees of $36,497 were collected from the related party.

This revenue recognition method is standard in the franchise industry, where franchisors typically collect ongoing royalties and advertising fees as a percentage of franchisees' gross sales. The franchisee should ensure they understand the exact percentages for these fees as outlined in their franchise agreement with Cinch I.T.