When does Stretch Zone recognize royalty revenue from franchise sales?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
Royalties are calculated as a percentage of franchise weekly fees over the term of the franchise agreement. Initial and successor franchise fees are payable by the franchisee upon signing a new franchise agreement or successor franchise agreement, and transfer fees are paid to the Company when one franchisee transfers a franchise agreement to a different franchisee. The Company's franchise royalties represent sales-based royalties that are related entirely to its performance obligation under the franchise agreement and are recognized as franchise sales occur.
Additionally, under ASC 606, initial and successor franchise fees, as well as transfer fees, are recognized as revenue on a straight-line basis over the term of the respective franchise agreement.
Source: Item 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the company recognizes royalty revenue as franchise sales occur. These royalties are calculated as a percentage of franchise weekly fees over the term of the franchise agreement. This means that Stretch Zone does not recognize the entire royalty revenue upfront but rather over the life of the franchise agreement, as weekly fees are collected.
In addition to royalty revenue, Stretch Zone also earns revenue from initial and successor franchise fees, as well as transfer fees. However, these fees are not recognized immediately as revenue. Instead, Stretch Zone recognizes these fees on a straight-line basis over the term of the respective franchise agreement. This accounting method spreads the revenue recognition evenly over the duration of the agreement.
For franchisees, this means that Stretch Zone's financial health and reported revenue are directly tied to the ongoing performance and weekly fees generated by its franchise locations. It also indicates that Stretch Zone has a vested interest in the long-term success of its franchisees, as their royalty payments contribute to the company's revenue stream over the life of the agreement.