How does Precision Door Service recognize revenue related to franchise agreements?
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.
In the event a franchise agreement is terminated, without a corresponding agreement executed by the same franchise owner, any remaining deferred fees are recognized in the period of termination.
The Company periodically extends credit to entities for the purchase of franchises. These entities are typically controlled by individuals who operate their businesses as an owner/manager. Generally, the notes receivable are collateralized by the related franchise territory rights.
Source: Item 21 — Financial Statements (FDD page 91)
What This Means (2025 FDD)
According to Precision Door Service's 2025 Franchise Disclosure Document, revenue recognition for franchise agreements is multifaceted. The company's obligations, including licensing intellectual property, providing supplier lists, training, and maintaining the MAP fund, are considered a single performance obligation. Consequently, Precision Door Service recognizes revenue on a straight-line basis over the franchise agreement's term, which is typically ten years with renewal options.
However, there are exceptions to this straight-line recognition. Variable or sales-based royalties, MAP fund fees, and revenue from goods and services are recognized as the underlying sales occur and performance obligations are satisfied. This means that as a franchisee generates sales and pays royalties or MAP fees, Precision Door Service recognizes that portion of the revenue at that time rather than spreading it out over the entire term.
Furthermore, if a franchise agreement is terminated without a new agreement with the same franchisee, any remaining deferred fees are recognized immediately in the termination period. This could impact Precision Door Service's financial statements in periods with multiple terminations. Franchise service fees from existing franchise owners, which generally range from 2% to 15% of the franchise owner's weekly sales, are recognized in the period in which the sales occur.