Over what period does Pearce Bespoke recognize unearned initial fee revenues?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
Each franchise agreement is comprised of several performance obligations. The Company identifies those performance obligations, determines the contract price for each obligation, allocates the transaction price to each performance obligation, and recognizes revenue when the Company has satisfied the performance obligation by transferring control of the good or service to the franchisee. The Company is using the practical expedient under the guidance of ASC 952-606 and is treating all pre-opening activities as distinct from the franchise license as defined in the next paragraph. The Company has determined that 50% of its initial franchise fee is allocable to the pre-opening obligations in the franchise contract. The remainder of performance obligations not related to the grant of the license represent a single performance obligation. and are recognized over the term of the respective franchise agreement from the date the agreement is executed. Unearned initial fee revenues from franchisee acquisition and acceptance will be recorded as deferred revenue and recognized as revenue over the term of the contract which is currently 10 years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, unearned initial franchise fee revenues are recognized over the term of the franchise agreement. Specifically, 50% of the initial franchise fee is allocated to pre-opening obligations, while the remaining portion is recognized over the life of the franchise agreement.
For a Pearce Bespoke franchisee, this means that the initial franchise fee paid to Pearce Bespoke is not fully recognized as revenue by Pearce Bespoke immediately. Instead, a portion of it is recognized gradually over the duration of the franchise agreement, which is currently 10 years. This accounting practice reflects the ongoing support and services Pearce Bespoke provides to its franchisees throughout the term of the agreement.
This revenue recognition method is a common practice in franchising, as it aligns the recognition of revenue with the delivery of services and support over the life of the franchise agreement. It also reflects the ongoing value that the franchisee receives from the franchisor's brand, system, and support. The FDD also states that the company is using the practical expedient under the guidance of ASC 952-606 and is treating all pre-opening activities as distinct from the franchise license.