What does Beauty Bungalows believe regarding its exposure to credit risk on cash and cash equivalents?
Beauty_Bungalows Franchise · 2025 FDDAnswer from 2025 FDD Document
Cash and cash equivalents include all cash balances on deposit with financial institutions and highly liquid investments with a maturity of three months or less at the date of acquisition. The Company maintains its cash in bank deposit accounts which could exceed federally insured limits. The Company has not experienced an instance where cash held in the account exceeded insured limits since its inception and has not had losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Beauty Bungalows' 2025 Franchise Disclosure Document, Beauty Bungalows believes it is not exposed to any significant credit risk on cash and cash equivalents. This is based on the fact that the company maintains its cash in bank deposit accounts, which could exceed federally insured limits. However, since its inception, Beauty Bungalows has not experienced any instances where cash held in the account exceeded insured limits, nor has it incurred any losses in such accounts.
For a prospective franchisee, this indicates that Beauty Bungalows management is confident in its cash management practices and the stability of the financial institutions it uses. The company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
It's important to note that while Beauty Bungalows believes it is not exposed to significant credit risk, there is always some level of risk associated with holding cash in bank accounts, particularly if the balances exceed FDIC insurance limits. Franchisees should consider this information in the context of their own financial planning and risk tolerance.