What comprised the accounts receivable for Checkersrallys as of January 1, 2024?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
-------------------------------|----|-------|----|-----------|----|-------| | | Gross | | Allowance | | Net | | Gross | | Allowance | | Net | | Total accounts | $ 8,372 | $ | (655) | $ | 7,717 | $ | 7,913 | $ | (514) | $ | 7,399 | | receivables | | | | | | | | | | | |
Accounts receivable is primarily comprised of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. The Company recognizes an allowance for credit losses based on historical collection experience and on a specific identification basis based upon past due balances and the financial strength of the obligor. The Company monitors that franchisees remain in compliance with all terms of the franchise agreement and sublease, when applicable, and when a franchisee is not in compliance, they are placed in default status. When a franchisee is placed in default status, the Company closely monitors royalties accruing on franchisee sales in order to determine if collectability is reasonably assured. If we determine that certain amounts are not probable of collection, we do not recognize the related royalty revenue. The Company writes off the related accounts receivable when it is determined that they are uncollectible.
Credit losses are recorded in general and administrative expenses in the accompanying consolidated statements of operations. The Company had credit losses of $0.6 million, $0.1 million, and $0.1 million for the fiscal year ended December 30, 2024 (Successor), and for the periods from June 17, 2023 through January 1, 2024 (Successor) and from January 3, 2023 through June 16, 2023 (Predecessor), respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - FAIR VALUE MEASUREMENTS
From time to time, we measure certain non-financial assets at fair value on a non-recurring basis in connection with evaluating long-lived assets for impairment.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the accounts receivable primarily consist of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. As of January 1, 2024, the net accounts and notes receivable totaled $7,399,000. These receivables are recorded net of an allowance for credit losses. Franchisee-related accounts receivable are typically due within 10 days of billing, and in some cases, Checkersrallys directly withdraws funds from the franchisee's bank account on a predetermined day.
Checkersrallys recognizes an allowance for credit losses based on historical collection experience and specific identification of past due balances, considering the financial strength of the franchisee. They monitor franchisees' compliance with the franchise agreement and sublease terms, placing non-compliant franchisees in default status. When a franchisee is in default, Checkersrallys closely monitors royalties accruing on franchisee sales to assess collectability. If collection is not reasonably assured, the related royalty revenue is not recognized, and uncollectible accounts receivable are written off.
For a prospective Checkersrallys franchisee, understanding the composition and management of accounts receivable is crucial. The reliance on royalties, fees, and rents means that the financial health of individual franchisees directly impacts Checkersrallys's revenue stream. The close monitoring of franchisee compliance and the measures taken to ensure collectability highlight the importance of maintaining a good financial standing as a franchisee. The credit losses for the fiscal year ended December 30, 2024, were $0.6 million, indicating the potential risk associated with uncollectible accounts. Franchisees should be aware of these credit monitoring practices and ensure they adhere to the payment terms to avoid default status and potential financial repercussions.