How does Jersey Mikes account for accounts receivable from franchisees that are deemed uncollectible?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
Principles of Consolidation—The consolidated financial statements include the accounts of the above-listed entities and are collectively referred to as Jersey Mike's Franchise Systems, LLC and Affiliates. All intercompany balances and transactions have been eliminated in consolidation. The Company evaluates its business relationships, such as those with franchisees, suppliers, and advertising cooperatives, to identify potential variable interest entities. The Company has concluded, based on their review and evaluation of professional standards, that certain of its franchises are variable interest entities; however, as the Company is not the primary beneficiary, these entities have not been consolidated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below:
Basis of Presentation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include all accounts of the Company and its subsidiaries.
Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Source: Item 22 — CONTRACTS (FDD page 77)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, the excerpts provided do not detail how Jersey Mike's specifically accounts for accounts receivable from franchisees that are deemed uncollectible. However, the FDD does outline Jersey Mike's significant accounting policies. These policies include the basis of presentation and the use of estimates. The consolidated financial statements are prepared following accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. This suggests that Jersey Mike's uses estimations when preparing financial statements.
While the FDD does not explicitly state the method for handling uncollectible accounts receivable, it does mention the franchisee's obligation to pay continuing royalty fees and advertising contributions through an automatic clearing house (ACH) account. Jersey Mike's has access to this account for payment collection. The FDD also states conditions under which the franchise agreement can be terminated due to the franchisee's failure to meet financial obligations or insolvency.
To fully understand Jersey Mike's accounting practices for uncollectible accounts, a prospective franchisee should ask the franchisor directly about their specific policies and procedures. This inquiry should include how they estimate and reserve for doubtful accounts, the criteria they use to determine when an account is uncollectible, and the methods they use to recover such debts. Understanding these practices is crucial for assessing the financial stability and transparency of the franchise system.
In summary, while the FDD excerpts provide a general overview of Jersey Mike's accounting policies and financial obligations of franchisees, it lacks specific details on the treatment of uncollectible accounts receivable. Therefore, direct communication with the franchisor is necessary to obtain a comprehensive understanding of this aspect of their financial management.