How are Bath Tune Up's notes receivable measured after issuance?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's financial instruments consist of cash, accounts receivable, notes receivable, rebates receivable, and accounts payable. The fair values of cash, accounts receivable, rebates receivable and accounts payable approximate their carrying amounts because of the short maturity of these items. The Company's notes receivable approximates their fair value upon issuance as the interest on these instruments is tied to or approximates current market rates and are subsequently measured at amortized cost.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, notes receivable are initially valued at fair value and subsequently measured at amortized cost. The fair value upon issuance is approximated because the interest rates on these notes are either tied to or closely reflect current market rates. This indicates that Bath Tune Up aims to align the interest charged on these notes with prevailing market conditions, ensuring the initial valuation accurately reflects their worth.
This accounting practice is significant for prospective Bath Tune Up franchisees because it provides transparency into how the company manages and values its financial instruments, specifically those related to financing franchise fees. The notes receivable relate to the Company financing a portion of the initial franchise fees from the sale of franchises. These notes are collateralized by the franchise territory and generally bear interest at rates ranging from 6% to 10%, with maturities generally ranging from two to six years.
The use of amortized cost after the initial fair value measurement means that the value of the notes receivable will be systematically reduced over time, reflecting the repayment of principal and interest. This approach provides a clear and consistent method for tracking the financial performance of these notes, which are a key asset for Bath Tune Up. Prospective franchisees should be aware of these practices, as they reflect the financial management and stability of the franchisor.
Furthermore, Bath Tune Up also considers the allowance for credit losses when evaluating notes receivable. As detailed in the 2025 FDD, the total notes receivable amount to $1,759,731, but after deducting the total allowance for credit losses of $702,621, the net value is $1,057,110. This indicates that Bath Tune Up proactively accounts for potential uncollectible amounts, providing a more realistic view of its financial health. This practice aligns with standard accounting principles and demonstrates a commitment to accurate financial reporting.