Does Kidokinetics provide inspection, testing, and other quality control programs for franchisees?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
Upon evaluation of the five-step process, the Company has determined that royalties from locations operated by a franchisee, which are based on a percentage of gross revenue, are to be recognized at the time the underlying sales occur. Service revenue is to be recognized in the period the services are performed. In allocating the transaction price and recognizing the revenue associated with initial franchise fees, the Company has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. The practical expedient allows franchisors to account for pre-opening services as a single distinct performance obligation. These pre-opening services include the following:
- 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
The Company has determined the fair value of pre-opening services. This amount is recognized upon the deliver of all pre-opening services, which is generally the commencement of operations. The remaining fees are then amortized over the life of the agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, Kidokinetics offers inspection, testing, and other quality control programs as part of its pre-opening services to franchisees. These services are included in the initial franchise fee and are considered a distinct performance obligation. Kidokinetics recognizes the revenue associated with these pre-opening services upon their delivery, which typically occurs when the franchisee commences operations.
These quality control programs are part of a broader set of pre-opening services that Kidokinetics provides. These services also include site selection assistance, help with obtaining and preparing facilities, training for the franchisee and their personnel, preparation and distribution of operations manuals, and bookkeeping and advisory services.
For a prospective Kidokinetics franchisee, this means that the initial franchise fee covers not only the right to operate under the Kidokinetics brand but also comprehensive support to ensure the franchisee is set up for success. The inclusion of inspection, testing, and quality control programs suggests that Kidokinetics is invested in maintaining brand standards and ensuring a consistent customer experience across all franchise locations.