What constitutes 'Gross Revenues' for a Stretch Zone franchise, and what deductions are permitted when calculating it?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
"Gross Revenues" mean the entire amount of all of your revenues from the ownership or operation of your Franchise Business including the proceeds of any business interruption insurance, whether the revenues are evidenced by cash, credit, checks, or gift certificates (unless exempted by us) and the fair market value of any services, property or other means of exchange, excepting only the amount of any sales taxes that are collected and paid to the taxing authority (based on the cash method of accounting). We allow the deduction of cash refunded and credit given to customers and receivables uncollectible from customers in computing Gross Revenues to the extent that the cash, credit or receivables represent amounts previously included in Gross Revenues where Royalty Fees and Advertising Contributions were paid. We deem that you have received Gross Revenues at the time the goods, products, merchandise or services from which Gross Revenues are derived are delivered or rendered, or at the time the relevant sale takes place, whichever occurs first.
Source: Item 8 — Receipts. Any sale made must be in compliance with § 683(8) of the Franchise Sale Act (N.Y. Gen. Bus. L. § 680 et seq.), which describes the time period a Franchise Disclosure Document (offering prospectus) must be provided to a prospective franchisee before a sale may be made. New York law requires a franchisor to provide the Franchise Disclosure Document at the earliest of the first personal meeting or ten (10) business days before the execution of the franchise or other agreement or the payment of any consideration that relates to the franchise relationship. (FDD pages 99–263)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, Gross Revenues are defined as the total income generated from the operation of the franchise. This includes all revenues, whether received in cash, credit, checks, or gift certificates (unless specifically exempted by Stretch Zone). It also encompasses the fair market value of any services, property, or other forms of exchange. The inclusion of business interruption insurance proceeds in Gross Revenues indicates that even during unforeseen disruptions, these funds are considered part of the franchise's overall income for royalty calculation purposes. Stretch Zone deems that you have received Gross Revenues at the time the goods, products, merchandise or services from which Gross Revenues are derived are delivered or rendered, or at the time the relevant sale takes place, whichever occurs first. This means that revenue is recognized when the service is provided or the sale occurs, regardless of when payment is actually received.
For a prospective Stretch Zone franchisee, understanding what constitutes Gross Revenues is crucial because royalty fees are calculated based on this figure. A broader definition of Gross Revenues means a potentially higher royalty payment. However, the FDD also specifies allowable deductions from Gross Revenues, which can help reduce the royalty burden.
The only deductions permitted from Gross Revenues are the amount of sales taxes collected and remitted to the appropriate taxing authority, calculated using the cash method of accounting. Additionally, cash refunds and credits given to customers, as well as uncollectible receivables, can be deducted, but only if these amounts were previously included in Gross Revenues and royalty fees and advertising contributions were paid on them. This provision ensures that franchisees are not paying royalties on revenue they did not ultimately retain. This is a fairly standard practice in franchising, as it prevents franchisees from being penalized for returns, bad debt, or taxes collected on behalf of the government.
It is important for potential Stretch Zone franchisees to keep accurate records of all sales, refunds, credits, uncollectible receivables, and sales tax payments to ensure accurate calculation of Gross Revenues and royalty fees. Understanding these definitions and deductions can significantly impact the financial performance and profitability of the franchise.