Section 26 Rev. 2026-08-16
What Item 7 excludes
The costs a franchisor does not have to put in the initial-investment table, and why a budget built only from that table is under-capitalised.
The Franchise Rule draws a line, and the line is a date. Item 7 covers what a franchisee spends to establish the business plus additional expenses through a stated initial period. Everything on the far side of that date is disclosed somewhere else in the document or not at all. The FTC’s Franchise Rule compliance guide is explicit that rent, royalty, and advertising obligations over the life of the agreement sit outside the initial-investment table.
That is a reasonable rule for a disclosure document and a poor basis for a budget. A buyer who funds the Item 7 high column and nothing else has financed a restaurant up to a boundary the franchisor drew for regulatory reasons, which is usually three months after the doors open. The under-capitalisation is not caused by a franchisor understating the table. It is caused by reading a complete disclosure as a complete cash plan.
The period is the edge, and it is short
Five of the six itemised filings here estimate additional funds for three months, including German Doner Kebab, Shah’s Halal Food, Mad for Chicken, and 375° Chicken ‘n Fries, all 2024 documents. The Great Greek’s 2023 filing uses a label reading “for 0 - 6 months.” Nothing past that window is in the table, and nothing in the table promises the business is self-funding when the window closes. The additional-funds line chapter takes that row apart; the working capital chapter rebuilds it as a monthly forecast. Both start from the same fact: the edge of Item 7 is an arbitrary number of weeks after opening.
Continuing fees are Item 6, and they start at the first sale
Royalty, brand fund, and required local advertising are percentages of sales that begin the week the restaurant opens and continue for the term. They are not Item 7 rows and should never be capitalised into one.
| Brand | Royalty | Brand fund | Required local | Filing year |
|---|---|---|---|---|
| German Doner Kebab | 6% | 3% | 2% | 2024 |
| Shah’s Halal Food | 5% | 1% | 1% | 2024 |
| The Great Greek | 6% | 3%, with the right to raise to 4% | 1% | 2023 |
| Mad for Chicken | 5% | 1% brand fund plus 1% media marketing | 1% | 2025 |
| 375° Chicken ‘n Fries | 6% | 1% | 1% | 2024 |
| Doner Shack | 6% | up to 2% | 2% | 2025 |
| Döner Haus | 3% | 2% | $2,000 a month, subject to a 10% annual increase | 2026 |
The last row is a reminder that a required local spend is not always a percentage. A flat monthly minimum with a stated escalator is a fixed cost from the first month, it does not fall when sales fall, and it cannot be added into a percentage stack at all — which is why any ranking built from rates will simply omit it.
German Doner Kebab’s 2 percent local requirement is waived if the outlet joins a brand advertising cooperative, and that cooperative may itself levy up to 2 percent; the same 2024 filing states that royalty and brand fund may be raised annually with no cap. Great Greek’s 2023 brand fund carries an express right to move to 4 percent. Mad for Chicken’s FDD issued 12 March 2025 discloses a brand fund and a media marketing fee that can each rise to 2 percent, and Doner Shack’s 29 April 2025 filing states its brand fund as a ceiling rather than a rate. A stack read off a table today is a floor, not a fixed cost.
Technology charges are the fee category most often mistaken for an Item 7 row, because Item 7 does contain a hardware line. Capriotti’s discloses a technology fee of 0.65 percent of gross sales on top of its royalty and funds, and Dog Haus discloses a separate technology development fee of $5,000 a year; both figures come from a May 2024 comparative study of published FDDs. The opening terminals are in Item 7. The subscription is not. The technology chapter keeps those apart.
Costs that arrive years after the table closes
Renewal and transfer are the two large payments no opening budget contains, and their disclosed forms differ enough that no single number covers the set. Great Greek’s 2023 filing states a renewal fee of $2,500 against a thirty-five-year initial term. German Doner Kebab’s 2024 filing sets renewal at 50 percent of the then-current franchise fee, with the option conditioned on the outlet not sitting in the bottom 10 percent on performance. The 2024 study records renewal fees of $5,000 at The Halal Guys, Dog Haus, and Crave Hot Dogs and BBQ, $10,000 at Capriotti’s, and, at Pepper Lunch, whatever the franchisor requires at renewal. Wienerschnitzel’s twenty-year term carries no right of renewal and no right to sell the business at all.
Exit is priced the same way. German Doner Kebab’s transfer fee is 5 percent of the sale price; Shah’s and 375° each charge 50 percent of the then-current franchise fee; Great Greek charges the greater of $29,500 or 10 percent of the sale price, capped at the then-current fee; Capriotti’s charges the greater of $10,000 or 5 percent, capped at $20,000; Dog Haus charges $17,500 and Mad for Chicken $10,000. A fee expressed against a then-current amount cannot be budgeted from a current document, which is the point worth writing down.
Labour the table does not capitalise
Item 11 states training hours. Item 7 states travel and living expenses to attend training, which the training costs chapter shows is usually a very different figure. The hours themselves are wages, and wages before opening are working capital or a pre-opening payroll line.
The disclosed commitments are not close to uniform. Capriotti’s 2024 study record shows 55 classroom hours and 270 on the job; Wienerschnitzel’s shows 48 and 480. Great Greek’s 2023 filing discloses 60.25 classroom hours and 180 on the job, the longest classroom block among the itemised filings. Crave’s record shows 15 and 37, and bluTaco’s shows no classroom hours and 11.5 on the job. Those spreads represent very different amounts of paid time, and none of that time appears as an Item 7 row in any of these filings.
Pre-opening payroll for staff who are not the training attendees is the larger omission. Someone has to be hired, inducted, and paid through a soft launch. The soft costs chapter deliberately leaves that out of its cluster because it is labour, not a professional fee.
The household is a separate schedule
Item 7 estimates business costs. It does not estimate the owner’s rent, mortgage, health insurance, taxes, or family obligations during the ramp, and an additional-funds line that covers store payroll may not contain an owner draw. The FTC’s consumer guide to buying a franchise advises estimating first-year operating expenses and personal living expenses for up to two years, because reaching break-even is a different event from opening. Keep that on its own sheet, as the worksheet does, so a household draw cannot disappear inside a payroll assumption.
Financing costs sit in the same gap. Principal, interest, fees, and the equity a lender requires all affect cash after opening and none of them is an Item 7 expenditure. A loan that funds the disclosed total does not fund its own service.
What the offering excludes, before any row is read
Some exclusions are in the format statement rather than in a footnote. German Doner Kebab’s 2024 Item 7 range of $690,500–$1,123,000 is per outlet inside a five-outlet minimum commitment; a single-store purchase is not what that table describes, and the table does not present the development schedule’s aggregate. Mad for Chicken’s FDD issued 12 March 2025 discloses a Full Restaurant at $321,125–$691,700 on 2,000–4,000 square feet, an Express Model at $243,500–$470,700 on 750–2,000, and a Multi-Unit Development Agreement at $263,500–$711,700 — three tables, and no basis for mixing a low from one with a high from another. The third of those excludes more than the other two: it covers entering a three-outlet development agreement and opening the first outlet, so the second and third outlets are outside it entirely. Doner Shack’s 29 April 2025 filing excludes the same way: a single restaurant at $498,000–$1,007,000 and a three-restaurant development agreement at $578,000–$1,087,000, in which two of the three restaurants are not costed. Reading a multi-unit Item 7 is the chapter for both.
Absence of a table is the strongest exclusion of all. Wienerschnitzel and bluTaco have fees and unit counts here and no Item 7 at all. The Halal Guys, Dog Haus, Crave Hot Dogs and BBQ, Pepper Lunch, Capriotti’s and Doner Shack have issued totals and no line-item worksheet here, which excludes composition rather than cost — a wide total with no rows hides more than a narrow one, because the spread is visible and the causes are not. None of those absences is a low figure, and none can be filled from a neighbouring brand.
What to add to the sheet before calling it funded
- Months past the stated initial period, in a monthly forecast rather than a single reserve figure.
- The Item 6 stack from the first dollar of sales, at the rates disclosed and at any disclosed ceiling.
- Technology subscriptions and any per-year platform charge.
- Pre-opening payroll for everyone who is not a training attendee.
- Debt service, lender fees, and required equity.
- Personal living expenses on a separate schedule.
- Renewal and transfer terms, noted as unbudgetable where they are tied to a then-current fee.
- Whether the offering is one outlet or a development commitment.
The table is not the wrong document. It is a disclosure with a stated scope, and its scope ends earlier than a restaurant’s cash problems do. Read it against what the range hides for the assumptions inside the columns, and against from Item 7 to a site budget for the conversion into something that can actually be funded.