When is the initial franchise/license fee recognized as revenue by Focus Cfo?
Focus_Cfo Franchise · 2025 FDDAnswer from 2025 FDD Document
two performance obligations in both the franchise and license agreement which are 1) providing the initial training program for new franchisees/licensees and 2) ongoing support of the FocusCFO System and FocusCFO Resources during the term of the agreement. The Company recognizes revenue from the sale of a franchise or license in two stages. The initial training program is made available to the franchisees/licensees within two days of executing their agreement; therefore, the training fee is recognized once the training program has been provided to the franchisee/licensee. Support for the FocusCFO System and FocusCFO Resources is provided throughout the ten-year agreement term, therefore, the initial franchise/license fee is recognized as revenue over the duration of the agreement.
As of December 31, 2024 and 2023, the Company had unearned franchise and license fees of $377,055 and $136,800, respectively. The current portion of the unearned revenue is included in other current liabilities. The long-term portion of the unearned revenue is included in other long term liabilities.
Income Taxes
The members of the Company have consented to the limited liability company form of organization with perpetual terms, and to be taxed as a partnership, which provides for the Company's taxable income or loss to be taxed directly to the members. Accordingly, the accompanying financial statements do not include a provision or credit for income taxes.
The Company complies with ASC 740-10 related to uncertain tax positions. ASC 740-10 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. Management is not aware of any tax positions that will be taken by the Company on its tax return that they consider to be uncertain. The tax returns to be filed for the year ended 2024 and filed for the years ended 2023, 2022 and 2021 will all be open and subject to examination by the Internal Revenue Service. However, there is no reason to believe the IRS will audit these returns.
Source: Item 23 — Receipts (FDD pages 37–126)
What This Means (2025 FDD)
According to Focus Cfo's 2025 Franchise Disclosure Document, the company recognizes revenue from franchise or license sales in two stages. The initial training program is available to franchisees/licensees within two days of executing their agreement. Therefore, the training fee is recognized once the training program has been provided. The support for the FocusCFO System and FocusCFO Resources is provided throughout the ten-year agreement term. As a result, the initial franchise/license fee is recognized as revenue over the duration of the agreement, which is ten years.
This means that Focus Cfo does not recognize the entire initial franchise or license fee as revenue immediately upon receipt. Instead, it recognizes the portion allocated to the initial training program shortly after the agreement is executed and the training is provided. The remaining portion of the fee, which is for ongoing support and access to the FocusCFO system, is recognized gradually over the ten-year term of the franchise or license agreement. This approach aligns with accounting standards that require revenue to be recognized as services are provided.
For a prospective Focus Cfo franchisee, this revenue recognition method has implications for the franchisor's financial statements. The unearned portion of the franchise and license fees is recorded as a liability on Focus Cfo's balance sheet. As of December 31, 2024 and 2023, the company had unearned franchise and license fees of $377,055 and $136,800, respectively. The current portion of the unearned revenue is included in other current liabilities, while the long-term portion is included in other long-term liabilities. This liability represents the services that Focus Cfo is obligated to provide in the future.
In 2024, Focus Cfo implemented a change in accounting principle related to the recognition of revenue from the sale of franchises and licenses in accordance with ASC 606. Previously, the company determined there was only one performance obligation under the franchise and license agreement, which was the completion of an initial training by the new franchisee/licensee. The company therefore previously recognized revenue from the sale of a franchise or license once the initial training had been completed by the franchisee/licensee. The initial training was required to be completed within two weeks of the signing of the agreement. The change was made because Focus Cfo determined that there are now two performance obligations: 1) providing an initial training program for new franchisees/licensees and 2) ongoing support of the FocusCFO System and FocusCFO Resources during the term of the agreement.