When is the preopening services revenue recognized by Hydrodog?
Hydrodog Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has concluded that certain preopening services (training, site selection, etc.) are a separate performance obligation distinct from the franchise license. Therefore, initial franchise fees for preopening services are allocated between the preopening services and the franchise right for each individual franchise. The preopening services revenue is recognized when the franchise is opened, as the Company cannot reasonably estimate its progress toward satisfaction of that obligation. Typically, the initial franchise fee is less than the stand-alone selling price of the preopening services provided; therefore, the initial fee is fully recognized by the time the business opens.
Source: Item 23 — RECEIPTS (FDD pages 43–166)
What This Means (2025 FDD)
According to Hydrodog's 2025 Franchise Disclosure Document, the company recognizes preopening services revenue when the franchise is opened. Hydrodog considers certain preopening services like training and site selection as separate performance obligations, distinct from the franchise license itself.
Therefore, Hydrodog allocates initial franchise fees between these preopening services and the franchise right. Because the company cannot reasonably estimate its progress toward satisfying the preopening obligations, the revenue recognition is deferred until the Hydrodog franchise location actually opens for business.
Hydrodog states that the initial franchise fee is typically less than the stand-alone selling price of the preopening services. This means that Hydrodog fully recognizes the initial fee by the time the business opens. This accounting practice affects how Hydrodog reports its financial performance and could be relevant for prospective franchisees evaluating the company's financial statements.