How does Deer Solution recognize revenue from initial franchise fees?
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, recognizing it over the life of the franchise agreement. This means that instead of recognizing the entire initial franchise fee as revenue immediately upon signing the franchise agreement, Deer Solution spreads the recognition of this revenue over the term of the agreement.
In 2022, Deer Solution deferred $300,857 of franchise fees. This amount is amortized over the 7-year term of the franchise agreement. Of the $300,857, the company recognized $50,143 as the current portion of contract liabilities, which is the amount due within the next twelve months. The remaining $250,714 was classified as a long-term portion of contract liabilities.
For a prospective franchisee, this accounting practice means that Deer Solution recognizes revenue from franchise fees gradually over the term of the agreement rather than all at once. This approach is common in the franchise industry, as it aligns the revenue recognition with the ongoing services and support provided to the franchisee throughout the franchise term. The deferred revenue is a liability on Deer Solution's balance sheet, representing the company's obligation to provide services in the future.