What are Precision Door Service's performance obligations under the franchise agreement?
Precision_Door_Service Franchise · 2025 FDDAnswer from 2025 FDD Document
e concept and various other factors;
- Other revenue consists of incentives earned from services performed for unrelated third parties and interest generated from notes receivable.
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
Notes to Combined Financial Statements ($000's)
obligation to provide a license for the right to use our brand's intellectual property. Revenue related to franchise agreements is recognized on a straight-line basis over the term of the agreement, with the exception of variable or sales-based royalties, MAP fund fees collected and revenue allocated to goods and services and other variable fees which are recognized as the underlying sales occur and performance obligations are satisfied.
Source: Item 21 — Financial Statements (FDD page 91)
What This Means (2025 FDD)
According to Precision Door Service's 2025 Franchise Disclosure Document, the company's performance obligations under the franchise agreement include several key provisions. These obligations consist of providing franchisees with a license to use Precision Door Service's intellectual property, a list of approved suppliers, certain training programs, and an operations manual. Additionally, Precision Door Service is obligated to maintain the Marketing, Advertising, and Promotional (MAP) fund.
Precision Door Service considers these obligations to be highly interrelated and not individually distinct. Therefore, they are accounted for as a single performance obligation, which is essentially the license for the right to use the Precision Door Service brand's intellectual property. This means that the revenue related to the franchise agreements is recognized on a straight-line basis over the term of the agreement, which is typically ten years with an option to renew.
However, there are exceptions to this straight-line revenue recognition. Variable or sales-based royalties, MAP fund fees collected, and revenue allocated to goods and services are recognized as the underlying sales occur and the performance obligations are satisfied. This approach aligns the revenue recognition with the actual performance and delivery of value to the franchisee. In the event that a franchise agreement is terminated without a corresponding agreement executed by the same franchisee, any remaining deferred fees are recognized in the period of termination.