What does Cicis base its allowance for credit losses on?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
inancial instruments do not share risk characteristics, they are evaluated on an individual basis. The adoption of ASC 326 had no material impact on the Company's combined financial statements.
Consistent with ASC 326, the Company offsets accounts receivable with an allowance for credit losses. The allowance for credit losses is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable and is based on historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Recoverie
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 58–64)
What This Means (2025 FDD)
According to Cicis's 2025 Franchise Disclosure Document, the allowance for credit losses is the company's best estimate of potential credit losses from existing accounts receivable. This estimate is determined by considering several factors. These factors include historical loss patterns, which provide insight into past uncollectible amounts. The company also considers the number of days that billings are past due, as older receivables are typically harder to collect. Finally, Cicis evaluates the potential risk of loss associated with specific accounts, likely considering the financial health and payment history of individual franchisees or other debtors.
For a prospective Cicis franchisee, this means that Cicis actively manages and accounts for the risk of uncollectible receivables. The allowance for credit losses directly impacts Cicis's financial statements, reflecting a more realistic view of its assets. The FDD states that as of December 31, 2024 and 2023, the Company recorded an allowance for credit losses of $30,166 and $0, respectively. This indicates that Cicis may have had some concerns about collectability in 2024 that did not exist in 2023.
It's important to note that Cicis charges account balances against the allowance only after exhausting all collection means and determining that recovery is unlikely. Any subsequent recoveries of previously written-off accounts are recorded when received, which could positively impact future financial results. This process aligns with standard accounting practices for managing and reporting potential credit losses.