What were the franchising revenues for Monicals Pizza in the earlier reported year?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalty Fees - The Company receives royalty fees, ranging from one percent to four percent of franchisees' sales. Since ongoing franchise royalty fees are based on actual franchise restaurant sales, the fees will fluctuate and are considered variable consideration. ASC 606 requires variable consideration to be estimated. However, there is an exception to this requirement for sales-based royalties related to licenses of intellectual property. These fees are recognized as revenue when sales are generated by the franchisees and comprise the entire franchising revenue amount in the accompanying consolidated financial statements for the years ended December 31, 2024 and 2023.
Initial Franchise Fees – When a new franchise is sold, the Company grants the franchisee a license to own and operate a franchised restaurant. As part of this license, the Company agrees to provide certain services to the franchisee. Generally, these services include assistance in site selection, training personnel, implementation of an accounting system, and design of a quality control program. Franchise agreements are valid for five years and during that time, the franchisee is allowed to use the Monical's name, recipes and menu. When the franchise agreement expires, the franchisee must pay an additional franchise fee to renew the agreement; however, at its discretion, the Company may waive the renewal fee.
In accordance with ASU 2021-02, initial franchise fees are recognized when the services and conditions relating to the sale of the franchise are substantially performed or satisfied by the Company. The services and conditions required to be performed or satisfied by the Company principally include site selection approval, equipment specification assistance and training assistance. Franchise fees received prior to substantial performance by the Company are deferred. Substantial performance is normally deemed to have occurred when the related franchise location opens for business. There were no initial franchise fees included within franchising revenue in the accompanying consolidated financial statements for the years ended December 31, 2024 and 2023.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the company's franchising revenues for the years ending December 31, 2024, and 2023 are discussed. The document states that royalty fees, which range from one percent to four percent of franchisees' sales, comprise the entire franchising revenue amount in the consolidated financial statements for both years. There were no initial franchise fees included within franchising revenue for either of these years. Therefore, the franchising revenues for Monicals Pizza consist solely of these royalty fees.
For a prospective franchisee, this means that Monicals Pizza's income from franchising is directly tied to the sales performance of its franchisees. The royalty fees, fluctuating between one and four percent, are recognized as revenue when franchisees generate sales. This arrangement aligns the franchisor's financial interests with the success of its franchisees, as higher franchisee sales translate directly into increased royalty revenue for Monicals Pizza.
It is important to note that the FDD specifies that initial franchise fees are not included in the franchising revenue for the reported years. These fees are recognized separately when Monicals Pizza has substantially performed the services associated with setting up a new franchise location, typically when the location opens for business. This accounting practice provides transparency regarding the different revenue streams for Monicals Pizza and how they are recognized.
Prospective franchisees should pay close attention to the royalty fee structure, as it directly impacts their ongoing costs. Understanding the percentage of sales that will be remitted to Monicals Pizza as royalties is crucial for assessing the financial viability of the franchise. Additionally, franchisees should inquire about the factors that determine the specific royalty rate they will be charged, as the range of one to four percent suggests that the rate may vary based on factors such as location, sales volume, or other performance metrics.