1851

Even if a franchise concept seems like the perfect fit for a candidate’s skills, interests and lifestyle, there are still financial questions to be answered. For example, how much will it cost to open and how does that estimate fit within the prospective franchisee’s financial considerations?<a href="https://1851franchise.com/initial-and-ongoing-costs-fdd-items-5-7-2703065#stories">Item 7 of the Franchise Disclosure Document (FDD)</a> is what a prospective franchisee should look to in determining and evaluating how much it will cost to develop and open the franchised business. This section is a great resource for the franchisee, as it includes everything from training and grand opening fees, to furniture and real estate development costs.“This is the section in the FDD that's all about estimated startup expenses,” said <a href="https://1851franchise.com/franchise-legal-players-charles-n-internicola-of-the-internicola-law-firm-pc-2706113#stories">Charles N. Internicola of The Internicola Law Firm</a>. “Item 7 is broken down into different categories of expenses that detail the estimated costs to construct, equip, and open the franchised business in order to reserve the capital required for the first three months of operation. If prepared properly, Item 7 should reflect all of the start-up costs it will take to develop and open the franchised business.”Item 7 provides a summary section for the franchisor to lay out a detailed explanation of all costs involved in the initial investment. The section is routinely presented as a chart that includes cost ranges for various expenses. In addition, this section typically includes a minimum recommendation of set-aside cash flow needed to start up the business and incidental, business-related costs.&nbsp;Many franchisors will specify a minimum of three months of living expenses be set aside as capital for the initial investment, and quite often more. Franchisees have the option to invest the minimum value in the range to keep initial costs down or investing at a higher level upfront in order to increase their ROI in the long-term.“There are a few misconceptions when it comes to Item 7,” said Internicola. “For one, the estimates are not always 100% accurate. Sometimes, franchisors, especially emerging franchisors, get their cost estimates wrong and so it is important that franchisees independently evaluate their estimated start-up expenses.”&nbsp;<a href="https://1851franchise.com/the-franchise-disclosure-document-what-items-are-most-important-2709318#stories">As with most of the FDD</a>, Item 7 is an area in which it is important to seek out additional information. Prospective franchisees should <a href="https://1851franchise.com/tips-for-reading-an-fdd-franchisees-share-best-practices-2709430">ask existing franchisees to disclose more detail</a> during the validation stage of a candidate’s franchise investigation.“Prospective franchisees should certainly take the time to validate that existing partners have stayed within the parameters laid out by Item 7,” said <a href="https://www.linkedin.com/in/brian-knuth-06101654?utm_source=1851franchise.com&utm_medium=article&utm_campaign=the-most-important-items-in-an-fdd-item-7-initial-costs-2712071" target="_blank" rel="nofollow">Brian Knuth, VP of Development at Raintree</a>. “If a current franchise partner is paying way more in marketing costs than the FDD estimates, that is an important factor to note when evaluating the opportunity.”&nbsp;Internicola points out that the estimated start-up expenses laid out in Item 7 do not always represent all of the capital that a franchisee will need. “Many times, franchisors are only required to include a reserve capital estimate for the first three months of operation. For many franchisees, building a cash-flow positive business takes more than three months and so, a three-month reserve capital estimate will not be enough.”While it may seem simple on the surface, Item 7 can give the prospective franchisee much more than a cost estimate—it can provide <a href="https://1851franchise.com/mosquitojoe/the-5-most-important-items-to-understand-in-an-fdd-2708077#stories">a clearer insight into the viability of the entire franchise opportunity</a>.&nbsp;“If an FDD’s Item 7 does not include detailed information and appears to be generic, it may be a sign that the franchisor has not put enough planning and thought into its cost estimates,” said Internicola. “Overall, an incorrect cost estimate can be a red flag that the franchisor's whole FDD may be off-track and unreliable.”

The Most Important Items in an FDD: Item 7 - Initial Costs

1851 Franchise

Franchising experts explain why Item 7 should be read closely and why the overall cost estimate is not always as straightforward as it seems.

the-most-important-items-in-an-fdd-item-7-initial-costs

TruBlue Home Service Ally

TruBlue’s Home Maintenance Plans: Peace of Mind for Homeowners

trublues-home-maintenance-plans-peace-of-mind-for-homeowners

Caring Transitions

Caring Transitions Targets Peoria, Illinois, for Franchise Growth

caring-transitions-targets-peoria-illinois-for-franchise-growth

Caring Transitions Celebrates a Strong Start to 2025 With 19 New Franchise Sales and Momentum-Building Training Events

caring-transitions-celebrates-a-strong-start-to-2025-with-19-new-franchise-sales-and-momentum-building-training-events

Right at Home

Right at Home 30th Anniversary in Home Care with Right at Home Logo

Celebrating 30 Years of Excellence and Future Innovations in Home Care

celebrating-30-years-of-excellence-and-future-innovations-in-home-care

Why TruBlue is the Ideal Franchise for Multi-Unit Owners: Scalable Growth With a Purpose

why-trublue-is-the-ideal-franchise-for-multi-unit-owners-scalable-growth-with-a-purpose

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands - 1851 Franchise

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands

doordash-acquistions-deliveroo-sevenrooms

Crumbl Franchise Investment - TSG Consumer Partners -  1851 Franchise

TSG Consumer Partners Takes Minority Stake in Crumbl, Signaling Franchise Growth Potential

crumbl-franchise-investment-tsg-consumer

Yum Brands Reports Strong Q1 Results with Big Boost from Taco Bell

yum-brands-reports-strong-q1-results-with-big-boost-from-taco-bell

QSR: McDonald’s Gains Momentum With Chicken Innovation, Value Deals and Franchisee Support

mcdonalds-franchise-recovery-chicken-strategy-value-deals-2025

The Future of Franchising: Trends and Predictions for 2025 and Beyond

the-future-of-franchising-trends-and-predictions-for-2025-and-beyond

Layoffs Surge to Pandemic-Era Highs, Opening Doors for Franchise Growth

layoffs-surge-to-pandemic-era-highs-opening-doors-for-franchise-growth

Franchisee spotlight image with Randy and Sandy Craft, Children's Lighthouse logo on blue background

The Crafts’ Successful Journey from New Parents to Children’s Lighthouse Franchisees

the-crafts-successful-journey-from-new-parents-to-childrens-lighthouse-franchisees

Franchisee spotlight graphic with photo of Amy Lepke and family and Papa Murphy's logo

After 14 Years as a Stay-At-Home Mom, Amy Lepke Returned to Papa Murphy’s — This Time as an Owner

papa-murphys-franchise-amy-lepke

Franchisee Spotlight with Micki Waters and Papa Murphy's Logo

Work Mom: How Micki Waters Became a Mother Figure to Her Entire Papa Murphy’s Team

work-mom-how-micki-waters-became-a-mother-figure-to-her-entire-papa-murphys-team

District Taco Franchise Costs, Fees, Profit and Data for 2025

franchise-deep-dive-district-tacos-franchise-costs-fees-profit-and-data

Franchisee spotlight image with photo of Robert Trujillo and UWRG logo on blue background

How Robert Trujillo Expanded His Construction Business With UWRG

how-robert-trujillo-expanded-his-construction-business-with-uwrg

The Most Important Items in an FDD: Item 7 - Initial Costs

MORE STORIES LIKE THIS