How does Learningrx account for pre-opening services under the practical expedient?
Learningrx Franchise · 2025 FDDAnswer from 2025 FDD Document
In allocating the transaction price and recognizing the revenue associated with initial franchise fees, the Corporation 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 preopening 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 in the LearningRx processes and systems
- 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
- Inspection, testing, and other quality control programs
The Corporation 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 upon commencement of operations.
Source: Item 23 — RECEIPT (FDD pages 54–209)
What This Means (2025 FDD)
According to the 2025 Learningrx Franchise Disclosure Document, Learningrx utilizes a practical expedient for private company franchisors, as outlined in ASC 952-606, to account for pre-opening services. This allows Learningrx to treat all pre-opening services as a single, distinct performance obligation. These services include site selection assistance, help with facilities (including financing, architectural, engineering, and lease negotiation), personnel training in Learningrx processes and systems, preparation and distribution of operational manuals, bookkeeping, IT, advisory services, and quality control programs.
Learningrx has determined that the fair value of these pre-opening services exceeds the initial franchise fees they receive. Consequently, the initial fees are allocated to cover the pre-opening services. The revenue from these services is then recognized once the Learningrx franchisee commences operations.
This accounting method means that Learningrx recognizes the initial franchise fee revenue only after the franchisee has opened their center and is operational. This approach could be seen as beneficial for franchisees, as it aligns the revenue recognition with the actual commencement of business operations, ensuring that Learningrx has a vested interest in providing comprehensive support during the critical pre-opening phase.