What does Face Foundrie consider when identifying the associated performance obligations related to initial franchise fees?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is required to allocate the transaction price associated with initial franchise fees between the franchise license and associated performance obligations. In identifying the associated performance obligations, the Company has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. In addition, the practical expedient allows franchisors to account for pre-opening services as a single distinct performance obligation, which the Company has elected to adopt. These pre-opening services include the following services (which the Company may or may not provide all of):
- Assistance in the selection of a site
- Assistance in obtaining facilities and preparing the facilities for their intended use, including related financing, architectural, and engineering services, and lease negotiation
- Training of the franchisee's personnel or the franchisee
- Preparation and distribution of manuals and similar material concerning operations, administration, and record keeping
- Bookkeeping, information technology, and advisory services, including setting up the franchisee's records and advising the franchisee about income, real estate, and other taxes about local regulations affecting the franchisee's business
- Inspection, testing, and other quality control programs
NOTES TO THE FINANCIAL STATEMENTS December 31, 2024, 2023 and 2022
Prior to 2023, the Company allocated the franchise between the pre-opening services obligation and the franchise license (recognizing the amount allocated to the license over the life of the underlying agreement). Effective for the year ended December 31, 2023, the Company has determined that the fair value of pre-opening services exceeds the initial fees received; as such, the initial fees are allocated to the pre-opening services, which are recognized as revenue when those pre-opening services have been completed (generally upon commencement of operations).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, when identifying performance obligations associated with initial franchise fees, Face Foundrie has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. This allows Face Foundrie to account for pre-opening services as a single distinct performance obligation.
These pre-opening services that Face Foundrie may or may not provide include assistance in site selection, help in obtaining and preparing facilities (including financing, architectural, engineering services, and lease negotiation), training of the franchisee or their personnel, preparation and distribution of operations manuals, bookkeeping, IT, and advisory services (including setting up records and advising on taxes and local regulations), and inspection and quality control programs.
Prior to 2023, Face Foundrie allocated the franchise fee between pre-opening services and the franchise license, recognizing the license amount over the agreement's life. However, starting in 2023, Face Foundrie determined that the fair value of pre-opening services exceeded the initial fees. As a result, the initial fees are now allocated to pre-opening services and recognized as revenue when those services are completed, typically when operations commence.