What are the primary components of Checkersrallys' receivables?
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. We estimate the fair value of our long-lived assets using significant inputs such as market conditions, comparable properties and Company experience with similar sites, which may be supplemented by appraisals or independent broker opinions of value when necessary, which would generally be categorized within Level 3 of the fair value hierarchy.
Intangible assets not subject to amortization consist of the brands (tradenames) intangible assets. A quantitative impairment test performed on these intangible assets consists of a comparison of their fair value with their carrying value.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company's receivables primarily consist of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. These receivables are recorded net of an allowance for credit losses. For franchisee-related accounts receivable, payment is expected within 10 days of billing; in some cases, Checkersrallys directly withdraws funds from the franchisee's bank account on a predetermined day.
In addition to the items above, notes receivable also make up a component of Checkersrallys' receivables. These notes consist of funds extended to franchisees for restaurant sales, as well as repayment terms for past-due rents and royalties. Checkersrallys establishes specific allowances when the collection of these funds is no longer likely. Secured notes are often collateralized by the assets of the associated restaurant, giving Checkersrallys the option to acquire these assets in the event of default, with the outstanding note balance included in the consideration.
For a prospective franchisee, understanding the composition and collection practices related to receivables is crucial. Franchisees should be aware of the 10-day payment requirement for accounts receivable and the possibility of direct withdrawals from their bank accounts. Additionally, franchisees should understand the conditions under which Checkersrallys may extend notes and the potential for restaurant assets to be used as collateral. Monitoring compliance with the franchise agreement and sublease terms is essential, as non-compliance can lead to default status and closer scrutiny of royalty payments.