What assumption has been made in the preparation of Exit's consolidated financial statements?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has generated losses from its operations, has net capital deficiencies in 2024, 2023 and 2022, respectively and has consolidated bank overdrafts in 2024 and 2023. The Company has projected that the 2025 budgeted operations will be sufficient to fund the Company's operations and strategic objectives and to meet its obligations as they become due. An integral part of the Company's plan includes the Company streamlining its operations by implementing cost cutting measures.
As a result of the measures taken as outlined above, management believes that it is probable that the Company will meet its obligations as they become due and to continue in operational existence for at least one year from the date that these consolidated financial statements were available to be issued. Accordingly, management has determined that there is no substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. If for any reason the Company is unable to continue as a going concern, it could have an impact on the Company's ability to realize assets at their recognized values, and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company's management believes that it is probable that Exit will meet its obligations as they become due and continue in operational existence for at least one year from the date that the consolidated financial statements were available to be issued. Based on this belief, management has determined that there is no substantial doubt about Exit's ability to continue as a going concern. Therefore, the accompanying financial statements do not include any adjustments that might result from this uncertainty.
This "going concern" assumption is a fundamental principle in accounting. It means that Exit is expected to continue operating its business for the foreseeable future, typically at least one year from the date of the financial statements. If there were significant doubts about Exit's ability to continue as a going concern, the financial statements would need to be adjusted to reflect the potential liquidation of assets and settlement of liabilities at amounts different from those stated.
However, the FDD also notes that Exit has generated losses from its operations, has net capital deficiencies in 2024, 2023 and 2022, respectively, and has consolidated bank overdrafts in 2024 and 2023. The company has projected that the 2025 budgeted operations will be sufficient to fund the company's operations and strategic objectives and to meet its obligations as they become due, including streamlining operations by implementing cost-cutting measures.
For a prospective franchisee, this information is crucial. While Exit's management believes the company will continue as a going concern, the presence of past losses, capital deficiencies, and overdrafts indicates financial challenges. It is important to carefully review Exit's financial statements and consider these factors when evaluating the franchise opportunity. Prospective franchisees should also inquire about the specific cost-cutting measures being implemented and their potential impact on the support and services provided to franchisees.