How are the costs associated with the services Cicis provides to related-party affiliates allocated?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
ncial statements to conform to the current year presentation. These reclassifications had no effect on reported net income or members' capital.
Notes to Combined Financial Statements
Note 2. Related-Party Transactions
The Company provides various services (the Services) to related-party affiliates. The Services provided represent shared costs consisting of, but not limited to, employee and personnel services, accounting and financial management, legal and tax, human resources, information technology and participation under the Company's retirement, welfare and other benefit plans. The Services are performed for an amount equal to the direct costs incurred by the Company, plus allocated overhead costs based on management's estimation of services provided.
The costs associated with the Services have been allocated using the most meaningful respective allocation methodologies which were primarily based on proportionate revenue, headcount, or direct cost by the Company compared to the related-party affiliates.
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 costs for services provided to related-party affiliates are allocated using methodologies based on proportionate revenue, headcount, or direct costs. These services encompass shared expenses such as employee and personnel services, accounting and financial management, legal and tax support, human resources, information technology, and participation in the company's benefit plans. The services are billed at an amount that covers the direct costs incurred by Cicis, along with allocated overhead costs estimated by the management based on the services provided.
For a prospective franchisee, this means that Cicis aims to allocate costs fairly among its related entities based on factors like revenue contribution, number of employees, and direct expenses. This approach ensures that each affiliate bears a reasonable share of the costs associated with the shared services they receive from the company. The FDD indicates that Cicis records these transactions as related party receivables on the combined balance sheets, reflecting the billing and payment processes for these services.
At the end of 2024 and 2023, Cicis had receivables from affiliates for these services amounting to $695,717 and $79,530, respectively. This indicates the outstanding amounts owed by related parties for the services provided by Cicis. Understanding these related-party transactions and cost allocation methods can provide franchisees with insight into the financial relationships within the Cicis organization and how costs are distributed among its various entities.