What is the significance of COVID-19 in relation to the Employee Retention Credit for Cinch I.T.?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
,138, which has been included in other income on the statements of operations and member's equity (deficit).
OTHER INCOME - CARES ACT (Continued)
Under relief provisions established by the CARES Act, the Company applied for a refundable tax credit against certain employment taxes. The tax credit is equal to 50 percent of qualified wages, up to $10,000 per employee, that an employer paid to employees after March 12, 2020 and before January 1, 2022. The Company received the tax credit in February 2022.
6. COMMITMENTS, CONTINGENCIES, AND UNCERTAINTIES
Uncertainties
The COVID-19 outbreak in the United States is unprecedented and has had a significant impact on the economy, businesses, and organizations. The United States and other countries removed the majority of COVID-19 restrictions in 2022, but could potentially reinstate restrictions should there be a resurgence in virus. There is still some uncertainty around the pandemic's duration and future impact, particularly as new variants of the virus emerge. COVID-19 could result in continued market volatility and possible economic downturn. The future impact on the Company's financial position and operating results cannot be reasonably determined at this time.
7. CONCENTRATIONS
Concentration of Credit Risk
The Company maintains its cash balance at a federally insured institution. At times, cash balances may exceed the federal insured limit of $250,000. Management monitors the financial condition of the banking institution, along with its cash balances, and tries to keep this potential risk to a minimum.
Concentration of Customers
Two franchisees, including a related party, accounted for approximately 64 and 55 percent of the Company's total revenues for the years ended December 31, 2022 and 2021, respectively. Receivables from these customers totaled $16,204 and $57,982 as of December 31, 2022 and 2021, respectively.
The Company expects these relationships to continue.
CINCH I.T. Franchise Disclosure Document April 30, 2024
| A. Agent for Service of Process | H. Spousal Non-Disclosure and Non-Competition Agreement |
|---|---|
| B. Financial Statements | I. |
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to the 2024 Cinch I.T. Franchise Disclosure Document, the COVID-19 pandemic and the resulting CARES Act had a direct impact on the company's financials through the Employee Retention Credit (ERC). The ERC was a refundable tax credit against certain employment taxes, designed to provide relief to employers during the pandemic.
Specifically, Cinch I.T. applied for and was granted a tax credit equal to 50% of qualified wages, up to $10,000 per employee, for wages paid between March 12, 2020, and January 1, 2022. The FDD notes that Cinch I.T. recognized a credit of $32,487 as extraordinary income in the 2020 statement of operations due to the 'unprecedented nature of COVID-19'. Additionally, in 2021 Cinch I.T. applied for the Employee Retention Credit in the amount of $38,487, which applies to payroll taxes paid during the year ended December 31, 2020. The credit was expected to be received in the year ended December 31, 2022.
This credit is reflected on Cinch I.T.'s balance sheet as 'Employee Retention Credit' under the assets section. For example, the balance sheet as of December 31, 2021, shows an Employee Retention Credit of $32,487. The pandemic is also mentioned as an 'uncertainty' that could result in continued market volatility and possible economic downturn, although the future impact on the company's financial position and operating results cannot be reasonably determined at this time. For a prospective franchisee, this indicates that government relief programs related to COVID-19 provided a financial benefit to Cinch I.T. during the pandemic, but the long-term effects of the pandemic remain uncertain.