What is Engineering For Kids' policy regarding cash deposits?
Engineering_For_Kids Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company's financial instruments. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash deposits and accounts receivable. The Company's policy requires cash deposits to be placed with high-quality financial institutions that are FDIC or NCUA insured and to limit the amount of credit risk from any one issuer. The Company regularly evaluates the credit standing of its counterparty financial institutions. Although such cash balances may exceed the federally insured limits at certain times during the year, they are, in the opinion of management, subject to minimal risk.
Source: Item 22 — CONTRACTS (FDD page 53)
What This Means (2025 FDD)
According to the 2025 Engineering For Kids FDD, the company is exposed to credit losses related to its financial instruments, including cash deposits. To mitigate this risk, Engineering For Kids' policy is to place cash deposits in high-quality financial institutions that are insured by the FDIC or NCUA. Additionally, Engineering For Kids aims to limit the amount of credit risk from any single issuer.
Engineering For Kids regularly assesses the credit standing of its counterparty financial institutions. While cash balances may, at times, exceed federally insured limits, the company's management believes that these balances are subject to minimal risk. This indicates that Engineering For Kids prioritizes the security of its cash deposits by choosing reputable and insured financial institutions.
For a prospective franchisee, this policy suggests that Engineering For Kids takes a conservative approach to managing its cash assets, which can be reassuring. However, franchisees may want to inquire about the specific criteria used to select "high-quality financial institutions" and the process for monitoring their credit standing to fully understand the risk management practices in place.