The Item 7 line item reserving operating capital to cover the franchisee's expenses during the early operating period before the unit reaches cash-flow positive — minimum 3 months per FTC rule, typically 6 months recommended.
The "additional funds" line in Item 7 is where new franchisors hurt themselves the most.
The FTC's minimum is three months of operating expenses. Three months is the floor, not the goal. Most experienced franchise attorneys recommend disclosing six months, particularly for businesses with longer ramp-up periods to cash-flow positive.
The math: take your projected monthly operating expense at a typical unit (rent, payroll, supplies, utilities, marketing, insurance — everything except cost of goods sold scaled to revenue). Multiply by the months you're disclosing. Footnote the underlying monthly figure so candidates understand the calculation.
A typical service franchise might disclose $15,000-$45,000 in additional funds. A typical restaurant franchise might disclose $50,000-$150,000. These numbers aren't arbitrary — they reflect how long your business actually takes to become cash-flow positive.
Why this matters: franchisees who undercapitalize fail. Their failure costs you a unit, damages Item 20's outlet table for years, and gives the next prospect's validation calls an unhappy former franchisee to talk to. A higher additional-funds line might make Item 7 look more expensive on paper, but it filters in candidates who can actually weather the first 18 months.
The Blueprint includes the full Operations Manual template with prompts and examples for each chapter. Same framework Navigator clients use. $2,997 one-time, lifetime template updates.
Get The BlueprintThe FDD section that discloses the franchisee's total estimated cost to open and operate a unit for the first three months — presented as a low-to-high range across roughly 12 specific cost categories.
The financial performance of a single franchise unit — revenue, gross margin, operating expenses, and EBITDA — at typical operating volume. Strong unit economics are the precondition for a sustainable franchise system.