New franchisors
Greywood CPA prepares and audits the financial statements new franchisors need for their first Franchise Disclosure Document. We are a licensed CPA firm (Virginia Board of Accountancy firm license #134961) working nationwide, at a fixed fee.
The FTC Franchise Rule lets start-up franchisors phase in audited financial statements: an unaudited opening balance sheet in the first year of selling franchises, an audited balance sheet in the second year, and the full set of audited statements after that. Several franchise registration states don't accept the phase-in or add conditions, so the plan depends on where you will sell.
Last reviewed: November 2026
| Year selling franchises | What Item 21 can include |
|---|---|
| First partial or full fiscal year | An unaudited opening balance sheet |
| Second fiscal year | An audited balance sheet as of the end of the first year |
| Third fiscal year and after | All required financial statements, audited |
The FDD must also disclose clearly if the franchisor has not yet been in business for three years.
About a dozen states require franchisors to register their FDD before offering franchises there, and some others require a filing. Several registration states don't allow the phase-in and expect audited statements from the start, and examiners often look closely at a new franchisor's capitalization. If your net worth is low, a state may require you to defer initial franchise fees until the franchisee opens, escrow them, or post a surety bond. A stronger opening balance sheet can avoid those conditions.
Many new franchisors choose to audit the opening balance sheet anyway, so they can register in every state from day one. An opening balance sheet audit is a small engagement: it covers the franchisor entity's cash, capitalization and any liabilities at a single date.
A 30-minute call about your organization, who needs the report and your deadline.
Scope, report type, timeline and one fixed fee, in writing.
Everything we need, uploaded through a secure portal.
Remote testing, then a draft for your review.
A CPA partner signs, and we walk you or your board through the results.
Under the FTC Franchise Rule, start-up franchisors can phase in audits: an unaudited opening balance sheet in the first year, an audited balance sheet in the second, and full audited statements after that. Several registration states don't allow the phase-in.
An audit of the franchisor entity's balance sheet at a single date, usually right after it is formed and capitalized. It lets a new franchisor register in states that don't accept the phase-in.
When examiners believe a franchisor is undercapitalized, they can require initial franchise fees to be deferred until the franchisee opens, held in escrow, or secured with a bond.
Usually yes. A separate franchisor entity keeps the audited statements simple and separates franchise obligations from your operating locations.
We quote one fixed fee in writing before any work starts. Opening balance sheet audits are a small, quick engagement.
Tell us where you plan to sell. A senior CPA will send a fixed-fee proposal within 1–3 business days.