What factors does Crave Cookies base its allowance for doubtful accounts on?

According to Crave Cookies' 2025 Franchise Disclosure Document, the company determines its allowance for credit losses (previously referred to as allowance for doubtful accounts) based on several factors. These factors include a review of outstanding receivables, historical collection information, and existing economic conditions. This allowance represents an estimate of accounts receivable that may not be fully collectible. As of December 31, 2024, the company did not record an allowance for credit losses.

For a prospective Crave Cookies franchisee, understanding how the franchisor manages accounts receivable and potential credit losses is important. While the company didn't have an allowance for credit losses in 2024, this could change depending on the financial health of their customers (franchisees) and the broader economic climate. The fact that the allowance is based on a review of outstanding receivables, past collection history, and current economic conditions suggests that Crave Cookies actively monitors and adjusts its accounting practices to reflect potential risks.

It's worth noting that during the years ended December 31, 2023 and 2022, Crave Cookies recorded a credit loss expense of $5,000 and $0, respectively, related to doubtful accounts receivable where collectability was not reasonably assured. This indicates that while no allowance was recorded as of the end of 2024, the company has experienced credit losses in the recent past. Franchisees should inquire about the typical credit terms extended to customers and the process for managing and writing off delinquent receivables to better understand the potential financial risks and obligations.

Furthermore, the FDD states that Crave Cookies generally does not charge interest on past due accounts and that delinquent receivables are written off based on individual credit evaluations and specific customer circumstances. This policy could impact a franchisee's own approach to managing customer accounts and the potential for revenue loss due to uncollectible debts. Understanding these policies and the factors influencing the allowance for doubtful accounts can help a franchisee better prepare for financial planning and risk management within their own Crave Cookies location.