Does Cinch I.T. consider a related party franchisee in its calculation of customer concentration?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
the member. Since management did not expect the entire amount to be repaid in the next twelve months, the balance was classified as long-term on the balance sheets.
Revenues
Cinch IT, Inc., a related party, purchased a franchise from the Company. Per the franchise agreement, the franchisee pays a royalty of 5 to 7 percent of its gross sales and an advertising fee of 1.5 percent of its gross sales. During the year ended December 31, 2021, the Company collected royalty fees of $157,390 and advertising fees of $42,983 from the related party. During the year ended December 31, 2020, the Company collected royalty fees of $133,400 and advertising fees of $36,497 from the related party. At December 31, 2021 and 2020, the franchisee owed the Company $38,146 and $17,642, respectively, in advertising and roy
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, Cinch I.T. considers a related party as a franchisee. Specifically, Cinch IT, Inc., which is identified as a related party, purchased a franchise from the Company. As a franchisee, Cinch IT, Inc. is required to pay a royalty fee of 5 to 7 percent of its gross sales, as well as an advertising fee of 1.5 percent of its gross sales.
During the year ending December 31, 2021, Cinch I.T. collected $157,390 in royalty fees and $42,983 in advertising fees from this related party. In the previous year, ending December 31, 2020, the company collected $133,400 in royalty fees and $36,497 in advertising fees from the related party. As of December 31, 2021, the related party franchisee owed Cinch I.T. $38,146 in advertising and royalties fees, while owing $17,642 as of December 31, 2020. Cinch I.T. also collected annual conference fees of $3,500 from this related party during the year ended December 31, 2021.
This indicates that Cinch I.T. recognizes revenue from related party franchisees, and these transactions are documented as part of the company's financial activities. For a prospective franchisee, this highlights the importance of understanding related party transactions and how they might impact the overall financial health and stability of Cinch I.T.