How does Brain Balance handle the write-off of uncollectible accounts receivable from franchisees?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
ccepted accounting principles 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 those estimates.
Accounts Receivable
The Company's accounts receivable balance represents amounts due from franchisees in the ordinary course of business. Accounts receivable are stated at invoice amounts. An allowance for credit losses is established for amounts expected to be uncollectible over the contractual life of the receivables. The Company collectively evaluates receivables to determine the allowance for credit losses based on a combination of factors, including the aging of receivables, historical collection trends, and charge-offs, and includes adjustments for current economic conditions and supportable forecasts. When the Company is aware of a franchisee's inability to meet its financial obligation, the Company may individually evaluate the related receivable to determine the allowance for expected credit losses. Uncollectible amounts are written off against the allowance for c
Source: Item 23 — RECEIPTS (FDD pages 72–292)
What This Means (2025 FDD)
According to Brain Balance's 2025 Franchise Disclosure Document, the company addresses uncollectible accounts receivable from franchisees by establishing an allowance for credit losses. This allowance covers amounts expected to be uncollectible over the contractual life of the receivables. Brain Balance collectively evaluates these receivables, considering factors such as the aging of the receivables, historical collection trends, and any prior charge-offs. They also make adjustments based on current economic conditions and any supportable forecasts. If Brain Balance becomes aware of a specific franchisee's inability to meet their financial obligations, they may individually evaluate that franchisee's receivable to determine the necessary allowance for expected credit losses.
The FDD indicates that uncollectible amounts are written off against the allowance for credit losses during the period in which they are determined to be uncollectible. The recorded allowance for credit losses was $29,763 as of December 31, 2024, $0 as of December 31, 2023, and $3,938 as of December 31, 2022. Write-offs of accounts receivable totaled $59,741 during the year ended December 31, 2024, $5,560 during the year ended December 31, 2023, and $0 during the year ended December 31, 2022. The total accounts receivable as of January 1, 2022, was $357,205.
For a prospective Brain Balance franchisee, this accounting practice means that Brain Balance actively manages and accounts for the risk of franchisees not paying their dues. The establishment of an allowance for credit losses and the subsequent write-off of uncollectible amounts is a standard accounting procedure that provides a more accurate representation of the company's financial health. Franchisees should be aware that Brain Balance monitors franchisees' financial conditions to mitigate credit risk, but generally does not require collateral to support accounts receivable.