How does Beggars Pizza determine the allowance for doubtful accounts for royalty receivables?
Beggars_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
sses in such accounts and believes it is not exposed to any significant credit risk on cash deposits.
Royalty Receivables – Royalty receivables are stated at the net collectible amount reduced by an allowance for credit losses. The Company does not charge interest or late fees on amounts past due. The Company estimates the allowance based on an analysis of individual customers adjusted for current conditions and reasonable forecasts, taking into consideration the age of past due accounts and an assessment of the customer's ability to repay. The allowance for credit losses was $10,000 at December 31, 2024 and 2023.
Other assets – Other assets consists of amounts paid for menu printing services that will be recognized as an expense in future reporting periods as the printed menus are received by the Company.
Revenue Recognition – The Company's revenue mainly consists of franchise fees and royalties. The Company sells individual franchisees the right to operate a Beggars Pizza location within a defined territory using the franchise brand name.
Initial franchise fees are $25,000 for a restaurant with 150 or fewer seats and $40,000 for a restaurant with more than 150 seats. The Company offers a 50 percent franchise fee discount to a franchisee that opens a second store. This fee is due and nonrefundable upon signing the franchise agreement.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, the company estimates its allowance for credit losses related to royalty receivables through an analysis of individual customers. This analysis is adjusted for current conditions and reasonable forecasts. Beggars Pizza considers the age of past due accounts and assesses the customer's ability to repay when determining the allowance. The company does not charge interest or late fees on past due amounts. The allowance for credit losses was $10,000 at December 31, 2024 and 2023.
Prior to 2023, Beggars Pizza based its allowance estimates on historical experience, specifically the relationship between actual bad debts and contract revenues. However, due to changes in the company's credit policy during 2023, they shifted to the individual customer analysis method described above.
For a prospective franchisee, this means that Beggars Pizza actively assesses the creditworthiness and payment behavior of its franchisees to manage its royalty receivables. The change in policy in 2023 suggests a more proactive approach to managing potential losses from unpaid royalties. Franchisees should be aware that while Beggars Pizza doesn't charge interest or late fees, they do actively monitor and account for potential non-payment of royalties.