When are revenues received by an Exit franchisee considered earned by the franchisee?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
Under ASC 606, initial and renewal fees, are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. Consideration received in advance of performing all significant services is included in deferred revenue and recorded as a liability.
Revenue from commissions and transaction fees is recognized in the period in which the franchisee earns the revenue upon which this fee is based and collectability from the customer is reasonably assured. Commissions are computed as a percentage of net sales earned by the franchisee. Transaction fees are flat fees for each transaction, the rates of which vary based on the amount of revenue generated by the franchisee.
Revenue from sponsorships is recognized over the period the related sponsorship lasts.
Management fees
Management fees consist of revenue derived from the Company providing certain sales and management services in specified regions of Exit USA (USA), an agent of Exit Realty Corp. International (EXIT).
The Company's performance obligations under the management agreement are to oversee franchise sales, provide leadership for franchisees, oversee compliance issues, and plan the expenditures of marketing funds for the USA regions as well as work with EXIT's marketing and social media staff to promote the USA regions. All the services the Company provides are highly interrelated and not distinct within the contract and are therefore accounted for under ASC 606 as a single performance obligation, which is satisfied over a period of time.
Under ASC 606, management fee income is recognized as revenue on a straight-line basis over the term of the respective management agreement which commenced on September 10, 2023, and is set to expire on September 10, 2033. Consideration received in advance of performing all significant services is included in deferred revenue and recorded as a liability.
Assignment income
Assignment income consists of revenue derived from the transfer of 1) rights or obligations under an existing franchise agreement from one franchisee to another, or 2) ownership interests under an existing franchise agreement in a franchisee entity from one franchisee to another. Revenue from assignment income is recognized when control of the franchise rights or ownership is transferred to the new franchisee, and the Company has satisfied its performance obligations under the agreement.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the timing of revenue recognition depends on the type of fee or income. Initial and renewal fees are recognized as revenue on a straight-line basis over the term of the franchise agreement. This means that Exit recognizes a portion of the revenue each month or year, rather than all at once when the fee is received. Consideration received in advance is recorded as deferred revenue and a liability until the services are performed.
Revenue from commissions and transaction fees is recognized in the period in which the franchisee earns the revenue upon which the fee is based, assuming collectability from the customer is reasonably assured. Commissions are calculated as a percentage of net sales earned by the franchisee, while transaction fees are flat fees that vary based on the revenue generated by the franchisee. Sponsorship revenue is recognized over the period the sponsorship lasts.
Assignment income, which comes from transferring franchise rights or ownership interests, is recognized when control of the franchise rights or ownership is transferred to the new franchisee, and Exit has satisfied its performance obligations under the agreement. Management fee income is recognized on a straight-line basis over the term of the management agreement.