How does Monicals Pizza recognize royalty fees from franchisees' sales?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the company recognizes royalty fees as revenue when sales are generated by the franchisees. These royalty fees, which range from one percent to four percent of franchisees' sales, are considered variable consideration because they fluctuate based on actual restaurant sales. This aligns with accounting standards (ASC 606) that provide an exception for sales-based royalties related to licenses of intellectual property. The royalty fees comprise the entire franchising revenue amount in the consolidated financial statements for the years ended December 31, 2024 and 2023.
Monicals Pizza uses the allowance method to account for uncollectible royalty fees, basing this on historical collection experience and a review of the current status of royalty fees receivable. However, for the years ended December 31, 2024 and 2023, no allowance for doubtful accounts was deemed necessary. This indicates that Monicals Pizza has been successful in collecting royalty fees from its franchisees.
For a prospective franchisee, this means that Monicals Pizza recognizes royalty revenue as franchisees make sales. The franchisee should be aware that the royalty fees are a percentage of their sales, and these fees are a primary source of revenue for Monicals Pizza. The franchisee should also note that Monicals Pizza monitors and manages the collection of these fees, although recent history suggests that these fees are consistently collected.