What obligations does Precision Door Service have to its franchisees under the franchise agreement?
Precision_Door_Service Franchise · 2025 FDDAnswer from 2025 FDD Document
Typically, franchise agreements are granted to franchise owners for an initial term of ten years with an option to renew. The respective franchisor's obligations under franchise agreements consist of providing a license of the applicable brand's intellectual property, a list of approved suppliers, certain training programs, an operations manual, and to maintain the MAP fund. These performance obligations are highly interrelated, and we do not consider them to be individually distinct, and therefore account for them as a single performance obligation, which collectively represent the
Source: Item 21 — Financial Statements (FDD page 91)
What This Means (2025 FDD)
According to the 2025 FDD, Precision Door Service's obligations to its franchisees, under the franchise agreement, include several key provisions. These obligations encompass granting franchisees the right to use Precision Door Service's brand intellectual property, providing a list of approved suppliers, offering specific training programs, supplying an operations manual, and maintaining a Marketing, Advertising, and Promotional (MAP) fund.
Precision Door Service considers these obligations as highly interrelated and not individually distinct. Therefore, they are accounted for as a single performance obligation, which is essentially providing a license for the franchisee to use the brand's intellectual property. The franchise agreements typically have an initial term of ten years, with an option for renewal, providing a long-term framework for the relationship between Precision Door Service and its franchisees.
In terms of revenue recognition, Precision Door Service recognizes revenue related to these franchise agreements on a straight-line basis over the term of the agreement. However, there are exceptions for variable or sales-based royalties, MAP fund fees, and revenue allocated to goods and services, which are recognized as the underlying sales occur and performance obligations are satisfied. This means that while the initial franchise fee is recognized over time, ongoing royalties and advertising fees are recognized as they are earned.
Furthermore, Neighborly Assetco LLC, the direct parent company, guarantees Precision Door Service's performance under the Franchise Agreement. This parent guaranty is included in an exhibit. Additionally, Manager (Neighborly Company) will provide required support and services to franchisees under a management agreement with Precision Door Service.