Why is Crepe De Licious anticipating higher than expected credit losses?
Crepe_De_Licious Franchise · 2025 FDDAnswer from 2025 FDD Document
The allowance estimate is derived from a review of the Company's historical losses based on the aging of its accounts receivable. This estimate is adjusted for management's assessment of current conditions, reasonable and supportable forecasts regarding future events, and any other factors deemed relevant by the Company. The Company believes historical loss information is a reasonable starting point in which to calculate the expected allowance for credit losses as the Company's portfolio segments have remained consistent. However, due to franchisee bankruptcy, the Company is anticipating higher than expected credit losses than have been incurred in the past. As a result, management has individually assessed these balances for an allowance for credit losses.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the company anticipates higher than expected credit losses due to franchisee bankruptcy. Specifically, in 2023, two Crepe De Licious franchises declared bankruptcy, which significantly impacted the provision for credit losses. As a result, management has individually assessed these balances for an allowance for credit losses.
This situation is considered a unique event, and Crepe De Licious does not expect it to recur in future years. The company believes that its historical loss information is generally a reasonable basis for calculating the expected allowance for credit losses, as its portfolio segments have remained consistent. However, the franchisee bankruptcies in 2023 necessitated a more individualized assessment of credit loss allowances.
For a prospective franchisee, this information highlights the importance of understanding the financial health and stability of existing franchisees. While Crepe De Licious views the 2023 bankruptcies as a one-time event, it underscores the potential risk of credit losses associated with franchisee operations. It would be prudent for a potential franchisee to inquire about the factors that contributed to the bankruptcies and what measures Crepe De Licious is taking to mitigate similar risks in the future.