How does Degree Wellness recognize revenue from initial franchise fees?
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, which is typically 10 years. This is because the fee provides the franchisee with the right to use Degree Wellness's intellectual property throughout the term of the agreement.
Degree Wellness records initial franchise fee payments that have not yet been recognized as revenue as deferred franchise revenue. This means that the company does not immediately count the entire initial franchise fee as income when it is received. Instead, it spreads the recognition of the revenue over the 10-year franchise term. Expenses related to the franchise agreements, such as broker fees, are also deferred and recognized as expenses over the same 10-year period.
For the period from April 1, 2024, through December 31, 2024, Degree Wellness's revenue consisted entirely of franchise fees recognized "over time." This indicates that the company's primary source of revenue during that period was the gradual recognition of initial franchise fees rather than other potential revenue streams like training or royalties. This accounting practice aligns with common franchise industry standards, where initial fees are often amortized over the franchise term to match the ongoing benefit received by the franchisee.