Item 21 (Franchisor Financial Statements)

Item 21 of the Franchise Disclosure Document contains the franchisor's audited financial statements, typically including balance sheets, income statements, cash flow statements, and notes for the most recent three fiscal years. These financial statements are critical for evaluating the franchisor's financial health. A franchisor with declining revenue, mounting debt, or operating losses may not provide adequate support. Item 21 also reveals how dependent the franchisor is on franchise fee income versus royalty income, a red flag if the model depends primarily on selling new franchises rather than supporting existing ones.