How does Deer Solution recognize revenue from the franchise license?
Deer_Solution Franchise · 2025 FDDAnswer from 2025 FDD Document
57 as a current portion of the deferred expenses as it will be due within the next twelve months, $339,286 as a long-term portion of deferred expenses, and $67,857 recognized as commission expenses for the year ended 31, December 2022.
Deferred revenue consists of the remaining initial franchise fees to be amortized over the life of the franchise agreements. Deferred revenue is a result of the collection of the initial franchise fee at the time of the signing of the franchise agreement and will fluctuate each year based on the number of franchise agreements signed. In 2022, $300,857 of franchise fees collected were deferred over the life of the franchise
Source: Item 23 — RECEIPTS (FDD pages 55–246)
What This Means (2025 FDD)
According to Deer Solution's 2025 Franchise Disclosure Document, the company defers revenue from initial franchise fees and amortizes it over the life of the franchise agreement. The deferred revenue arises because Deer Solution collects the initial franchise fee when the franchise agreement is signed. This deferred revenue balance fluctuates each year based on the number of new franchise agreements signed during that period.
In 2022, Deer Solution collected $300,857 in franchise fees, which were then deferred over the 7-year life of the franchise agreement, starting from the effective date. Of this amount, $50,143 was recognized as the current portion of contract liabilities, representing the amount due within the next twelve months. The remaining $250,714 was classified as a long-term portion of contract liabilities.
This accounting treatment means that Deer Solution does not recognize the entire initial franchise fee as revenue immediately upon receipt. Instead, it spreads the recognition of this revenue over the term of the franchise agreement. This approach aligns with accounting principles that match revenue recognition with the period over which the services related to the franchise agreement are provided. For a prospective franchisee, this indicates that Deer Solution's financial statements accurately reflect the ongoing nature of the franchise relationship and the associated revenue recognition.