On what basis does Crepe De Licious calculate the allowance estimate?
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 and rebates receivables. 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. As discussed in Note 3, the Company believes that the 2023 credit loss is unique and does not anticipate it to be reflective of future expected credit losses. Therefore, management believes no allowance for credit losses is necessary as of December 31, 2024. During 2023, the Company had franchisees declare bankruptcy, the Company had anticipated higher than expected credit losses that were incurred in the past. As a result, management has individually assessed these balances for an allowance for credit losses as of December 31, 2023. During 2024, the accounts receivables were written off against the allowance.
Source: Item 23 — RECEIPTS (FDD pages 57–233)
What This Means (2025 FDD)
According to Crepe De Licious's 2025 Franchise Disclosure Document, the allowance estimate is based on a review of the company's historical losses, specifically focusing on the aging of its accounts receivable. This involves analyzing how long accounts have been outstanding and the likelihood of them being collected.
Crepe De Licious adjusts this historical data by incorporating management's assessment of current conditions, reasonable forecasts regarding future events, and any other factors deemed relevant by the company. This forward-looking approach ensures that the allowance estimate reflects the most up-to-date information and expectations. The company believes that using historical loss information is a reasonable starting point because its portfolio segments have remained consistent over time.
However, the document also notes that significant events, such as franchisee bankruptcy, can lead to higher-than-expected credit losses. In such cases, Crepe De Licious management individually assesses these balances to determine the appropriate allowance for credit losses. This individualized assessment suggests that while historical data provides a baseline, specific circumstances can override the general estimate. In 2023, two franchises declared bankruptcy, which significantly impacted the provision for credit losses. For the year ending December 31, 2024, management believed no allowance for credit losses was necessary, but in 2023, management individually assessed balances for allowance for credit losses.