Over what period does Pump It Up recognize the initial franchise fees?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company requires the entire nonrefundable initial franchise fee to be paid upon execution of a franchise agreement, which typically has an initial term of 10 years. Initial franchise fees are recognized ratably on a straight-line basis over the term of the franchise agreement. The Company's services under the franchise agreement include training of franchisees, site selection, the right to use trademarks and proprietary information, and ongoing operations support. The Company provides no financing to franchisees and offers no guarantees on their behalf. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.
Renewed Franchise Fees
Franchisees have the option to renew the franchise agreement at the end of the initial franchise term. When a franchisee chooses to renew their agreement, a nonrefundable renewal fee is charged to the franchisee similar to the initial franchise fee. Renewed franchise fees are recognized ratably on a straight-line basis over the term of the renewed franchise agreement.
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
According to Pump It Up's 2025 Franchise Disclosure Document, the company recognizes initial franchise fees ratably on a straight-line basis over the term of the franchise agreement. The franchise agreement typically has an initial term of 10 years. This means that instead of recognizing the entire initial franchise fee as revenue immediately upon signing the agreement, Pump It Up spreads the recognition of the revenue over the 10-year period.
For a prospective Pump It Up franchisee, this accounting practice means that Pump It Up recognizes a portion of the initial franchise fee as revenue each year for 10 years. This is a common practice in the franchise industry because the franchisor provides ongoing services and support to the franchisee throughout the term of the agreement. These services include training, site selection assistance, the right to use trademarks and proprietary information, and ongoing operational support.
Pump It Up considers the services provided in the franchise agreement as a single performance obligation because they are highly interrelated with the franchise license. Additionally, when franchisees renew their franchise agreement, the nonrefundable renewal fees are also recognized ratably on a straight-line basis over the term of the renewed agreement.