When evaluating Better Blend's financial statements, what must be evaluated regarding accounting policies?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Better Blend Franchising, LLC (the "Company") is a registered limited liability company (LLC), under the laws of the state of Ohio and was formed on June 22, 2022, pursuant to an Operating Agreement.
The Company is involved in managing, operating, and engaging in franchising related activities in connection with Better Blend brand including but not limited to for restaurants, cafes and/or other products services or concepts.
Basis of Accounting
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Royalties Receivable
Royalties receivable are reported at invoice value. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its franchisees to make required payments. Management considers the age of royalties receivable balances and general economic issues when determining the collectability of specific accounts. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the allowance for doubtful accounts. Balances that remain outstanding after reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and credit to royalties receivable. The Company has not established an allowance for doubtful accounts as it is management's opinion that uncollectible accounts, if any, at December 31, 2023 were not material to the financial statements.
Revenue Recognition
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 43)
What This Means (2024 FDD)
According to Better Blend's 2024 Franchise Disclosure Document, when reviewing the company's financial statements, it's important to consider the significant accounting policies Better Blend employs. These policies are detailed in the notes to the financial statements.
Specifically, the financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). This means Better Blend adheres to a standardized set of accounting rules, making it easier to compare their financials to other companies. However, it also notes that the preparation of these statements requires management to make estimates and assumptions that could affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from these estimates.
Better Blend's accounting policies also cover how they handle royalties receivable. These are reported at invoice value, and Better Blend maintains an allowance for doubtful accounts to cover potential losses from franchisees who can't make payments. This allowance is based on the age of the receivable balances and general economic conditions. Additionally, Better Blend recognizes revenue when a contract is identified, performance obligations are identified, the transaction price is determined and allocated, and the company has satisfied the applicable performance obligation. Revenue primarily comes from initial franchise fees, royalties, marketing fees, and development fees from franchisees.
For a prospective franchisee, understanding these accounting policies is crucial. It provides insight into how Better Blend manages its finances, recognizes revenue, and accounts for potential losses. This knowledge can help in assessing the financial health and stability of the franchisor, and in making informed decisions about investing in a Better Blend franchise.