The 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.
Item 7 is the number every franchise candidate scrolls to first. The FTC requires it to be presented as a low-and-high range across specific cost categories: initial franchise fee, training, real estate, leasehold improvements, equipment, signage, opening inventory, technology, licenses, insurance, professional fees, marketing, and "additional funds" for the first three months of operations.
The range should reflect real variation across markets you'd actually approve — not be artificially narrow ("$50K-$55K") or evasive ("$50K-$1.5M"). Defensible ranges anchor in real-world unit budgets across at least three different market types.
The "additional funds" line — operating capital reserve — is the most under-disclosed. The FTC's three-month minimum is a floor, not a goal. Most experienced franchise attorneys recommend disclosing six months for businesses with longer ramp-up periods.
A defensible Item 7 isn't just legal compliance — it's a sales conversion lever. SBA preferred lenders use Item 7 directly when underwriting franchisee loans, and serious operators self-select against the high end of the range plus a 25% safety margin.
“Item 7 is the spine of your franchise sales conversation. Get it right and the right candidates self-select in. Get it wrong and you either scare off serious operators or attract people who can't afford to succeed.”— Jason Stowe, Founder
Thirty minutes with a franchise SME who's built systems for 30 years. We'll look at your specific situation and tell you what's realistic — without the pitch.
Book a 30-min strategy callThe FDD section that discloses the initial franchise fee and any other fees the franchisee pays before opening — including the amount, when each payment is due, and whether any portion is refundable.
The FDD section that discloses every recurring or contingent fee a franchisee will or might pay during the franchise relationship — royalties, brand fund, technology, transfer, audit, late fees, and more.
The only optional disclosure in the FDD — Item 19 is where franchisors can disclose actual financial performance data (revenue, gross profit, EBITDA) for franchised or company-owned units, supported by a reasonable basis and substantiated records.
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.