How does Southern Steer recognize revenue from the initial plan contract with a franchisee?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
included separately.
Revenue Recognition:
The sale of the initial franchise territory is earned over time, and is earned, when certain performance obligations are met.
- The contract with the Customer: The parties involved are Southern Steer Franchising International, LLC and the prospective franchisees, for their financial consideration, in cash at an initial cost of $49,500, $35,000 for a second and $25,000 for each additional location. The franchisee will receive training, national advertising and use of trademarks.
- Performance obligations: Under the franchise agreement, Southern Steer Franchising International, LLC must certify the franchisee in the standards required by Southern Steer Franchising International, LLC and provide the franchisee with assistance in design and branding of the space and training in the various services offered by Southern Steer Franchising International, LLC.
- Determining the transaction price: Included in the Franchise Disclosure Document is a plan package with predetermined prices that the prospective franchisee chooses from.
- Allocating the purchase price: The allocation of the purchase price per obligation:
- Certification 100% the Company has determined that all preopening obligations meet the requirements to be considered one performance obligation.
- Recognize Revenue: The company recognizes revenue, from Initial plan c
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
According to Southern Steer's 2025 Franchise Disclosure Document, the company recognizes revenue from the initial plan contract in the month the franchisee opens their location. The initial franchise territory sale is earned over time as performance obligations are met. These obligations include Southern Steer certifying the franchisee in the required standards and providing assistance in the design, branding, and training for the services offered. The initial cost for a franchise is $49,500, with subsequent locations costing $35,000 for the second and $25,000 for each additional location.
The agreement between Southern Steer and the franchisee includes the franchisee receiving training, national advertising, and the use of trademarks. The company has determined that all pre-opening obligations meet the requirements to be considered one performance obligation, with 100% allocation to certification.
This revenue recognition policy means that Southern Steer does not recognize the initial franchise fee as revenue until the franchisee has actually opened for business. This is a common practice in franchising, as it aligns revenue recognition with the delivery of services and the franchisee's ability to generate income. For a prospective franchisee, this may provide some assurance that Southern Steer is invested in their success and that the initial fee is tied to the launch of their business.