Item 21 concerns financial statements in a US FDD. Those statements relate to the reporting entities identified in the document. They should not be confused with the trading results or future profitability of your proposed outlet.
Identify the reporting entity
Record whose statements are supplied, the periods covered and any relevant notes about the group structure. Ask an accountant how that entity relates to the party promising support. A familiar consumer brand name may not by itself identify the contractual counterparty.
Review cash and obligations with an accountant
Ask for an explanation of liquidity, debt, related-party balances and material accounting notes. Look for issues that require clarification rather than relying on one headline profit figure. A buyer’s informal ratio calculation is not a substitute for professional assessment.
Connect questions to operating reliance
List the services and systems on which your outlet would depend. Discuss how unresolved financial questions affect that reliance and what contractual protections or further evidence should be considered. Avoid declaring solvency or insolvency from a brief document summary.
A worked research example
Example review question: “Which entity funds the support team described in the offer, and where is that relationship explained in the statements and agreements?” This connects the accounts to your actual dependence on continuing services.
Evidence to gather
- Identify every reporting and contracting entity
- Save statements and accompanying notes
- Obtain an accountant’s targeted questions
- Connect findings to promised support services
Before you move forward
Frequently asked questions
Do franchisor profits show franchisee profits?
No. They concern different businesses and potentially different revenue sources.
Can I assess financial health from revenue alone?
No. Cash, liabilities, accounting notes and the entity structure also matter.
Does this article certify a franchisor’s finances?
No. It prepares questions for review of the current statements by an appropriate professional.
Sources and scope
References checked 6 November 2026. The questions, examples and diagrams are our editorial research tools; they are not statements that every franchise has the same terms.
- eCFR — 16 CFR 436.5, disclosure items
US federal disclosure-item structure; not a review of a particular offer or all state requirements.
- SBA — Manage your business
General operating and finance background; local and contractual requirements still need checking.
General editorial information, not personalised legal, tax or financial advice. Confirm local requirements and the actual documents with appropriate advisers. Examples are hypothetical. Contact the editor or suggest a correction.
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