How does Management Recruiters calculate interest income on notes receivable from franchisees?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
pen to examination. No income tax returns are currently under examination. As of December 31, 2023, and December 31, 2022, the Company does not have any unrecognized tax benefits, and continues to monitor its current and prior tax positions for any changes.
Note 13 – Notes Receivable
Notes from Franchisees
Several franchisees borrowed funds from us primarily to finance the initial purchase price of office assets, including intangible assets.
Notes outstanding, net of allowance for losses, were approximately $9.6 million and $3.5 million as of December 31, 2023 and December 31, 2022, respectively. Notes receivable generally bear interest at a fixed rate between 6.0% and 10.0%. Notes receivable are generally secured by the assets of each office and the ownership interests in the franchise. We report interest income on notes receivable as interest income in our consolidated statements of income. Interest income was approximately $263 thousand and $247 thousand during the year ended December 31, 2023 and December 31, 2022, respectively.
We
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, interest income from notes receivable is calculated by applying a fixed interest rate to the outstanding principal balance. These notes receivable from franchisees primarily represent funds borrowed to finance the initial purchase price of office assets, including intangible assets. The notes are generally secured by the assets of each office and the ownership interests in the franchise. Management Recruiters reports this interest income as interest income in their consolidated statements of income.
The interest rates on these notes typically range between 6.0% and 10.0%. Management Recruiters monitors the financial condition of its debtors and establishes an allowance for potential losses on uncollectible notes. This allowance is estimated separately for franchisees due to the availability of detailed sales information. As of December 31, 2023, notes outstanding, net of allowance for losses, were approximately $9.6 million, and as of December 31, 2022, they were approximately $3.5 million.
For the years ended December 31, 2023 and December 31, 2022, Management Recruiters reported interest income of approximately $263 thousand and $247 thousand, respectively. The allowance for potentially uncollectible notes receivable from franchisees was approximately $260 thousand as of December 31, 2022, and approximately $405 thousand as of December 31, 2021. These figures reflect Management Recruiters' assessment of the borrowers' financial condition, the underlying collateral value, and the potential impact of the economy on their performance.