Buying & due diligence

Solvency statement

A signed statement in the disclosure document confirming the franchisor's directors' view that the franchisor can pay its debts as they fall due, backed by financial reports.

What it means

Schedule 1 of the Code requires a franchisor to include a solvency statement, signed by a director, with either two years of financial reports or an independent audit. It is the franchisor's formal declaration that the business behind your franchise is financially sound.

A franchisor's insolvency is one of the most serious risks a franchisee faces, it can disrupt supply, support and the brand overnight. The solvency statement and accompanying financials are your primary tool for assessing that risk.

In practice

Have an accountant review the solvency statement and the financial reports behind it. A qualified audit, going-concern notes, or a refusal to provide financials are warning signs worth taking seriously.

A real example

Before buying, Marco's accountant reviews the franchisor's solvency statement and two years of accounts, and flags a large loan due for repayment next year, prompting Marco to ask how the franchisor plans to refinance it.

Solvency statement, FAQs

Where do I find the franchisor's solvency statement?

In the disclosure document. The Code requires a director-signed solvency statement plus two years of financial reports or an independent audit.

Why does franchisor solvency matter to me?

If the franchisor becomes insolvent, your supply, support, marketing and even the brand can be disrupted. Assessing solvency is a core part of due diligence.

See the full franchise glossary, the Fee Index or our buyer guides.