What financial instruments potentially subject Bens Soft Pretzels to concentrations of credit risk?
Bens_Soft_Pretzels Franchise · 2025 FDDAnswer from 2025 FDD Document
with a term of one year or less. Short-term lease expense for the years ended December 31, 2024, 2023 and 2022, was $0, $4,000 and $12,000, respectively.
NOTE 10 – CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable and franchise fees receivable. The Company maintains its cash balances in three financial institutions. The accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per financial institution. At times the cash balances may exceed this insured limit. As of December 31, 2024, 2023, and 2022, a total of $118,416, $104,771, and $63,726, respectively, of the cash balances were uninsured.
Concentrations of credit risk with respect to trade receivables are limited due to the large number of franchise owners and their dispersion across different geographic areas.
Concentrations of credit risk with respect to franchise fees receivable are limited to the small group of franchise owners that the Company has extended credit to.
December 31, 2024, 2023, and 2022
NOTE 11 – COMMITMENTS
The Company has a month-to-month agreement with its law firm for services rendered.
NOTE 12 – EMPLOYEE RETENTION CREDIT
The Employee Retention Credit (ERC) was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid for employees during the period of March 15, 2020, through September 30, 2021, in an effort to help businesses retain their workforce and avoid layoffs. It is a refundable payroll tax credit that could be claimed quarterly if certain criteria were met. If the Company is audited and it is determined that the Company was not eligible to claim these funds, then the Company will be required to pay back the funds received plus interest.
The Company met the required criteria for ERC in 2021 and filed the necessary amended payroll tax returns in order to receive ERC funds. The Company decided to account for these funds under FASB ASC 958-605 as a conditional grant. In accordance with ASC 958-605, grant income is recognized as the conditions of release have been substantially met.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, Ben's Soft Pretzels is potentially subject to concentrations of credit risk through its cash, accounts receivable, and franchise fees receivable. Ben's Soft Pretzels maintains cash balances in three financial institutions, which are insured by the FDIC up to $250,000 per institution. However, the FDD notes that cash balances sometimes exceed this insured limit. As of December 31, 2024, 2023, and 2022, the uninsured cash balances were $118,416, $104,771, and $63,726, respectively. This means that if one of these banks were to fail, Ben's Soft Pretzels could lose the uninsured amounts.
With respect to accounts receivable, which primarily consist of royalties, ad fund fees, and gift card sales due from franchisees, Ben's Soft Pretzels believes the risk is limited due to the large number of franchise owners spread across different geographic areas. This diversification reduces the risk that a large number of franchisees would default simultaneously. However, the company does maintain an allowance for credit losses, which was $20,000 as of December 31, 2024, indicating some risk of uncollectible accounts.
Ben's Soft Pretzels also extends credit to some franchise owners, allowing them to pay the initial franchise fee over time, typically within twelve months. The company believes the concentration of credit risk here is limited to the small group of franchise owners with these payment arrangements. As with accounts receivable, Ben's Soft Pretzels maintains an allowance for credit losses related to franchise fees receivable. As of December 31, 2024, 2023, and 2022 the allowance for credit losses was $0. For the years ended December 31, 2024, 2023, and 2022 credit loss expense related to franchise fees totaled $8,500, $0 and $0.