Over what period does Degree Wellness recognize initial franchise fee revenue?
Degree_Wellness Franchise · 2025 FDDAnswer from 2025 FDD Document
Initial franchise fee revenue is recognized over the life of the franchise agreements, which is generally 10 years, as the fee is for the right to use the Company's intellectual property over the term of the agreement. Initial franchise fee payments received by the Company that have not yet been recognized as revenue are recorded as deferred franchise revenue. Expenses incurred related to the franchise agreements, consisting mostly of broker fees, are deferred and recognized as expense over the life of the associated franchise agreement. See Note 3 for further disclosures related to deferred franchise revenue and deferred franchise fees. During the period April 1, 2024 through December 31, 2024, the Company's revenue was comprised entirely of franchise fees recognized "over time".
Source: Item 23 — Receipts (FDD pages 66–257)
What This Means (2025 FDD)
According to Degree Wellness's 2025 Franchise Disclosure Document, the company recognizes initial franchise fee revenue over the life of the franchise agreement. This period is generally 10 years. Degree Wellness considers the initial fee as compensation for the right to use the company's intellectual property throughout the term of the agreement.
For a prospective Degree Wellness franchisee, this means that the initial franchise fee paid to Degree Wellness is not immediately recognized as revenue by the company. Instead, it is recognized gradually over the 10-year franchise term. The portion of the initial franchise fee that has not yet been recognized as revenue is recorded as deferred franchise revenue on Degree Wellness's balance sheet.
Furthermore, expenses that Degree Wellness incurs related to the franchise agreements, such as broker fees, are also deferred and recognized as expenses over the same 10-year period. This accounting practice aligns the recognition of revenue and associated expenses over the life of the franchise agreement. During the period April 1, 2024 through December 31, 2024, the Company's revenue was comprised entirely of franchise fees recognized "over time".