How does Bombs Away determine the allowance for doubtful accounts related to franchisee receivables?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
after invoicing. The Company reports these receivables at net realizable value.
Management determines the allowance for doubtful accounts based on historical losses, current expectations, and economic conditions. On a continuing basis, management analyzes delinquent accounts receivable and, once these accounts receivable are determined to be uncollectible, they are written off through a charge against an existing allowance account. The allowance account is reviewed regularly and adjusted against earnings as appropriate. The Company determined that an allowance on outstanding franchisee receivables of $0 was necessary as of December 31, 2023. Franchisee bad debt expense was $0 for the year ended December 31, 20
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the allowance for doubtful accounts is determined by management based on historical losses, current expectations, and economic conditions. Bombs Away analyzes delinquent accounts receivable on a continuing basis. Once these accounts receivable are determined to be uncollectible, they are written off through a charge against an existing allowance account. The allowance account is reviewed regularly and adjusted against earnings as appropriate.
As of December 31, 2023, Bombs Away determined that an allowance on outstanding franchisee receivables of $0 was necessary. Franchisee bad debt expense was $0 for the year ended December 31, 2023, and franchisee amounts written off were also $0 for the same period. This indicates that, at least for the period reported, Bombs Away did not experience any material issues with uncollectible franchisee receivables.
For a prospective franchisee, this suggests that Bombs Away has a history of franchisees meeting their financial obligations. However, it is important to note that this is a snapshot in time, and future economic conditions or changes in franchisee performance could impact the allowance for doubtful accounts. A potential franchisee should inquire about the factors that could influence these estimates and how Bombs Away manages the risk of uncollectible accounts.