What could happen if Beauty Bungalows' cash balances exceed federally insured limits?
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, the company maintains its cash in bank deposit accounts, which could exceed federally insured limits. Currently, the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank. If Beauty Bungalows' cash balances exceed this limit in any particular bank, the amount above $250,000 would be uninsured.
This means that if the bank holding Beauty Bungalows' funds were to fail, the company could potentially lose the amount exceeding the $250,000 FDIC insurance limit. While the FDD states that Beauty Bungalows has not experienced any instances where cash held in the account exceeded insured limits since its inception and has not had losses in such accounts, there is still a risk.
For a prospective franchisee, this highlights the importance of understanding how Beauty Bungalows manages its cash and the potential risks associated with its banking practices. It would be prudent to inquire about the company's policies for managing cash balances and ensuring that funds are adequately protected, especially if considering a significant investment or anticipating large cash flows through the franchise system.