What financial instruments potentially expose Fitstop to a concentration of credit risk?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
nts*-The Company's franchise arrangements generally include a license which provides for payments of initial fees as well as continuing royalties to the Company based upon a percentage of sales. Under this arrangement, franchisees are granted the right to operate franchise business for a specified number of years.
Concentration of Credit Risk- Financial instruments that potentially expose the Company to concentration of cred
Source: Item 23 — RECEIPTS (FDD pages 50–135)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, the financial instruments that potentially expose Fitstop to a concentration of credit risk primarily consist of cash and cash equivalents. As of December 31, 2023, and 2022, the balances in Fitstop's cash accounts did not exceed the Federal Deposit Insurance Company's (FDIC) insurance limit of $250,000. Fitstop maintains its cash and cash equivalents with accredited financial institutions.
For a prospective franchisee, this means that Fitstop's financial stability could be tied to the performance of these financial institutions. While the balances are within FDIC limits, a significant disruption at these institutions could still impact Fitstop's liquidity and operations. Franchisees should be aware that Fitstop's financial health is, in part, dependent on these external factors.
It is common for franchisors to hold cash and cash equivalents, but the concentration of these assets can pose a risk. Franchisees may want to inquire about Fitstop's risk management strategies related to its cash management practices and diversification of its financial institution relationships to mitigate potential risks.