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

Paris Baguette

NJBIZ: Paris Baguette Ramps Up Expansion With New Franchises, Facility and 2030 Growth Target

njbiz-paris-baguette-ramps-up-expansion-with-new-franchises-facility-and-2030-growth-target

Busy Bee Jumpers

Top 10 Reasons To Buy a Busy Bee Jumpers Franchise in 2025

top-10-reasons-to-buy-a-busy-bee-jumpers-franchise-in-2025

Home Halo

home-halo-former-athletes-frachisees-image

Why Former College Athletes Can Make Winning Home Halo Franchise Owners

former-college-athletes-home-halo-franchise

TruBlue Home Service Ally

TruBlue Featured in USA Today as Key Player in Helping Seniors Age Safely at Home

trublue-featured-in-usa-today-as-key-player-in-helping-seniors-age-safely-at-home

Right at Home

Right at Home Marks 30 Years With Continued Franchise Growth

Right at Home Marks 30 Years With Continued Franchise Growth, Tech Advancements, and Strong System Engagement in First Half of 2025

right-at-home-franchise-growth-2025

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 Development Website Builder

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

"Come in, We're OPEN" sign against abstract background

Small Business Optimism Dips, Raising Concerns for Franchise Owners

small-business-optimism-dips-raising-concerns-for-franchise-owners

Photo of Roof Scientist truck and trailer

Roof Scientist Expands Into Northern Indianapolis as Entrepreneur Dale Speckman Launches New Business in Fishers

roof-scientist-expands-into-northern-indianapolis

Image of Donald Trump pointing with red stripes in the background

August 1 Tariff Deadline Is Said to Have ‘No Extensions’: What This Could Mean for Franchises

august-1-tariff-deadline-franchise-impact

What June’s Jobs Report Means for the Franchise Industry

what-junes-jobs-report-means-for-the-franchise-industry

Drone Delivery Takes Flight in QSR: The Future of Franchise Operations?

drone-delivery-takes-flight-in-qsr-the-future-of-franchise-operations

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

Technomic Releases Annual Ranking of the Top 15 Fast-Food Chains in the U.S.

technomic-releases-annual-ranking-of-the-top-15-fast-food-chains-in-the-us

Rising Jobless Claims Could Signal Challenges — and Opportunities — for Franchising

rising-jobless-claims-affect-franchising

From Prescriptions to Pastries: Kari Khandelwal Creates a Comforting Community Bakery 

From Prescriptions to Pastries: Kari Khandelwal Creates a Comforting Community Bakery in Overland Park, Kansas

paris-baguette-franchise-overland-park-khandelwal

Kansas Couple Revitalizes Local Childcare With Children’s Lighthouse

From Corporate Careers to Community Roots: Kansas Couple Revitalizes Local Childcare With Children’s Lighthouse

kansas-couple-opens-childrens-lighthouse-gardner-olathe

The Ultimate Guide to Selling Franchises: How To Create a Strong Incentive

how-to-build-strong-incentives-to-attract-prospective-franchisees

Hely and Hiral Patel Bring Their Longtime Dream to Life With The Brass Tap

brass-tap-franchise-pasadena-maryland-hely-hiral-patel

Franchisee spotlight graphic with photo of Ricki Oberoi and Layne's Chicken Fingers logo

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

MORE STORIES LIKE THIS