How does Hawaiian Bros Island Grill recognize royalties and advertising fund contributions?
Hawaiian_Bros_Island_Grill Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties are typically billed and paid on a weekly basis and are usually 5% - 6% of Gross Sales. These fees represent the majority of the consideration received under the franchise agreements. Based on the application of the sales-based royalty exception within Topic 606, these fees are recognized as revenue when the related restaurant sales occur.
The Company has established and administers an advertising fund for the purpose of enhancing the goodwill and public image of the "Hawaiian Bros" concept. Franchisees are required to make contributions to the advertising fund in the manner and at the rate set forth by the Company. These contributions are based on a percentage of sales and are generally 3% of Gross Sales. Based on the application of the sales-based royalty exception within Topic 606, these fees are recognized as revenue when the related restaurant sales occur.
Source: Item 23 — RECEIPTS (FDD pages 77–262)
What This Means (2025 FDD)
According to Hawaiian Bros Island Grill's 2025 Franchise Disclosure Document, the company recognizes royalties and advertising fund contributions as revenue when the related restaurant sales occur. Royalties, which typically range from 5% to 6% of Gross Sales, are billed and paid weekly. These royalties constitute the majority of the consideration Hawaiian Bros Island Grill receives under its franchise agreements. The recognition of these fees as revenue is based on the sales-based royalty exception within Topic 606.
Similarly, contributions to the advertising fund, generally 3% of Gross Sales, are also recognized as revenue when the related restaurant sales occur. Hawaiian Bros Island Grill has established this fund to enhance the goodwill and public image of the "Hawaiian Bros" concept, and franchisees are required to contribute as per the company's stipulations. Like royalties, the revenue recognition for these contributions also falls under the sales-based royalty exception within Topic 606.
For a prospective franchisee, this means that Hawaiian Bros Island Grill accounts for these revenues based on when sales are made at the restaurant. This accounting practice is fairly standard in the franchise industry, where ongoing royalties and advertising fees are directly linked to sales performance. Franchisees should be aware of these percentages when forecasting their potential revenue and expenses. Understanding how these fees are recognized can also help franchisees better interpret the financial statements and performance metrics provided by the franchisor.