Buy a Franchise
If you want to create a realistic budget for a franchise, you have to seriously scrutinize the estimates in Item 7. Consider factors like your location, essential pre-opening costs and more.
Item 7 is where the excitement of buying a franchise bumps into the cold, hard numbers. It’s the first section most of us flip to when we get our hands on the FDD, and it's usually the first time we realize this is going to cost more than we thought.
David Bloom, chief development officer of Capriotti’s Sandwich Shop, has walked hundreds of franchisees through this section. He’s seen where buyers get tripped up, where expectations drift and where the real surprises tend to hide.
“When reviewing Item 7 in the FDD, it typically quotes a range for the expenses for the various line items associated with opening your business,” Bloom said. “There are a few things to take into consideration when calculating your actual projections that may or may not be applicable.”
That last part matters. May or may not be applicable is where Item 7 stops being theoretical and starts becoming personal.
Item 7 usually gives you a range of costs. That's totally normal. Franchisors just can't know everything about your specific location, what your landlord will charge, or the details of your loan. The mistake a lot of buyers make is thinking the middle of that range is a safe bet. Spoiler alert: it usually isn't.
Bloom says one of the most common misinterpretations is assuming every listed cost will land neatly in the middle. “Legal and professional services are a good example,” he said. “Are you planning to hire an attorney to review and consult? Some buyers do. Some don’t. That alone can move your numbers.”
The same applies across the board. Item 7 gives you the ingredients. You still have to cook the meal.
Few Item 7 line items swing as dramatically as real estate. “Will you be buying and building or leasing your location?” Bloom said. “That will greatly impact the type and amount of financing and the terms that might be applicable.”
Leasing looks like the easy choice financially right now, but you need to watch out for big deposits, landlords who are super-strict, or those surprise fees. Building your own place might save you money later, but you'll need way more cash upfront and it'll take longer to open your doors. Oh, and don't forget the local market — that always changes the game.
“In some markets, landlords expect to be paid key money,” Bloom said. “Or if your credit score or net worth doesn’t meet their requirements for leasing top locations, the landlord may require significant deposits or upfront nonrefundable payments.”
Buyers often separate Item 7 from financing, but that’s a mistake. “Banks typically offer much more attractive terms depending on your credit score and collateral,” Bloom said. “The type of collateral guarantees required also vary greatly by loan type and financial institution, especially for your first location.”
Two buyers opening the same brand in the same city can end up with very different cash requirements purely based on credit profile and loan structure. Item 7 doesn’t adjust for that. You have to. And don’t forget deposits.
“Landlords, utilities and other vendors may require refundable deposits,” Bloom said. “But they still require that you have the funds available in advance of opening your doors.”
One of the most overlooked aspects of Item 7 isn’t how much you’ll spend. It’s when you’ll spend it. Tenant improvement allowances are a classic example.
“Money that you are expecting to get back from the landlord to offset your construction costs are typically paid out well after opening,” Bloom said. “So you may have to fund that amount as part of your pre-opening capital expenditures.”
On paper, it looks covered. In real life, you’re floating it. Construction draw timing matters too.
“Understand when the contractors and all vendors related to building out or supporting your new business will need to be paid,” Bloom said, “and whether you or your bank will be making those payments.”
Item 7 sometimes talks about "optional" expenses. That word is music to a buyer's ears because it sounds like you're in control. But sometimes, it's a bit deceiving. Bloom always points to exterior signage as a classic example.
“You may have the ability to put up additional signage on several exposures of the building, on a pole or monument sign,” he said. “These additional signage opportunities are often significantly impactful to long-term success and volume, but they may require an additional capital outlay.”
Optional doesn’t mean unnecessary. It means strategic. The same goes for technology.
“POS system setups along with other optional technologies like camera systems, music and entertainment systems, wiring, cabling and backup power,” Bloom said. “Those costs add up quickly.”
Labor-related costs are another area where Item 7 can feel deceptively simple. “How many employees or managers you plan to hire, send to training and support on payroll,” Bloom said. “That matters.”
It's easy to overlook things like travel for training or overtime during the initial launch. Individually, they don't seem like a big deal, but they absolutely pile up and can quietly drain your working capital.
Utilities can do the same. “The optionality to use gas or electric energy varies greatly by market,” Bloom said, “and can have a significant impact on both capital expenditures and operating expenses.”
If there’s one line item buyers underestimate most consistently, it’s working capital.
“You will need sufficient funds in your business account to support operations should the business not cash flow while you’re working out the kinks,” Bloom said, “and optimizing for profitability.”
Inventory timing matters too. “Both pre-opening and post-opening inventory may require prepayment or be on relatively short terms,” Bloom said, “depending on vendor credit.”
That’s cash out before cash in. Always plan for more than you think you’ll need.
Pre- and post-opening marketing is another area where buyers tend to default to the low end of the range. “You may want or need to aggressively promote your new business well in advance of opening,” Bloom said, “which requires additional funds to be available.”
Want to explore which franchise categories are best positioned for 2026? Visit 1851GrowthClub.com and continue your journey through The Complete Guide to Buying a Franchise in 2026.
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