FDD Item 21: Audited Financial Statements Guide
Item 21 tells you whether the franchisor itself is financially healthy enough to support your investment for the next decade.
Item 21 contains the franchisor's audited financial statements for the last three years. Many buyers skip this section. That's a mistake.
Why It Matters
You are entering a 10-year contract with this organization. If the franchisor is insolvent, burning through cash, or carrying unsustainable debt, that affects your ongoing support, supply chain, and brand value.
What to Look For
Three-year revenue trend, profitability, cash position, working capital, and any going-concern qualifications from the auditor. A growing, profitable, well-capitalized franchisor is a much safer partner than a shrinking, unprofitable one.
Auditor Notes
Read the auditor's notes carefully. Material weaknesses, going-concern qualifications, or significant adjustments to prior periods are all warning signs that deserve direct conversations with the franchisor's CFO.
When You Need Help
If you don't read financial statements professionally, have your accountant review Item 21 before signing. The cost is modest. The risk of skipping it is real.
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