Working capital and the initial period

Item 7 usually ends with “additional funds,” “working capital,” or “operating expenses” for a stated initial period. That line is not a promise that the restaurant will break even before the period ends. It is the franchisor’s estimate of additional cash needed during the period named in the filing.

The period is part of the number. Four of the line-item filings use three months and one uses up to six months. A six-month reserve cannot be ranked against a three-month reserve as if it were merely a larger quote for the same thing. The FTC’s Franchise Rule compliance guide describes initial investment as costs paid through opening plus additional expenses through the initial period; future rent, royalty, and advertising obligations over the life of the agreement remain outside that definition.

The five disclosed reserves

Brand	Filing label	Period	Low	High
German Doner Kebab	Additional Funds (Approx. 3 months)	3 months	$15,000	$20,000
Shah’s Halal Food	Additional Funds - 3 Months	3 months	$10,000	$30,000
The Great Greek	Additional funds (for 0 - 6 months)	0–6 months	$35,000	$75,000
Mad for Chicken	Operating Expenses / Additional Funds - 3 months	3 months	$51,375	$162,000
375° Chicken ‘n Fries	Operating Expenses / Additional Funds - 3 months	3 months	$30,000	$60,000
Döner Haus	Additional Funds – 3 months	3 months	$20,000	$35,000

Those figures are not ranked by generosity. They are ranked, if at all, by whether the footnote, the format, and the rest of Item 7 make the same assumptions you will actually live through.

GDK’s $15,000–$20,000 for three months sits inside a $690,500–$1,123,000 outlet estimate for 1,200–1,400 square feet. The reserve is 2 percent of the high total. Mad for Chicken’s $51,375–$162,000 for three months sits inside a $321,125–$691,700 estimate for a 2,000–4,000 square-foot full restaurant. The reserve is 23 percent of that high total. Both filings use a three-month label. They are not describing the same cash problem. Döner Haus’s $20,000–$35,000, also for three months, is 6 percent of its $586,000 high on an 850–1,200 square-foot imbiss.

Great Greek’s $35,000–$75,000 is the only itemised reserve that can run as long as six months, and the label itself says “0 - 6 months.” A buyer who annualizes that high end ($75,000 ÷ 6 × 12 = $150,000) and then compares it with Mad for Chicken’s high end ($162,000 for three months, which would be $648,000 if someone naively annualized it) is inventing a run-rate neither filing stated. Keep the period attached to the number.

Shah’s $10,000–$30,000 for three months is the lowest high end in the table except GDK’s. Shah’s printed Item 7 total is $197,000–$405,000; the high column of the fifteen lines adds to $410,000, a $5,000 gap the generated cost page reports rather than repairs. The working-capital line is not the source of that gap, and stretching the reserve to “fix” the total would be the wrong response.

375°’s $30,000–$60,000 for three months sits between Shah’s and Mad for Chicken on a smaller footprint (800–1,500 square feet). The label matches Mad for Chicken’s wording — Operating Expenses / Additional Funds - 3 months — which is a reminder that identical labels do not mean identical contents.

What the reserve assumes

The Item 7 footnote should identify the initial period and the basis for the estimate. Look for whether it includes payroll, utilities, occupancy, insurance, inventory replenishment, local marketing, technology fees, royalties, repairs, debt service, and cash timing between sales and card settlement. Then compare that list with the monthly model. A cost that is absent from the footnote does not become zero.

Several neighboring rows can look like working capital and are not. GDK’s Opening Inventory is $15,000–$20,000 and Pre-Launch, Soft Launch and Grand Opening Marketing is $10,000–$15,000. Shah’s Initial Inventory is $10,000–$30,000 and Grand Opening Campaign is $1,000–$5,000. Mad for Chicken’s Initial Inventory is $14,250–$28,200 and Grand Opening Advertising is $15,000. Those amounts are spent to open, or to open the doors with product and a campaign; they are not the three-month operating reserve. Adding them into additional funds double-counts if the footnote already assumed replenishment, and omitting them from the cash plan undercounts if they are due before the first sale.

Opening day is not steady state. Training labor can be high while throughput is low. Waste, rework, and overtime can rise as the team learns. A launch can produce an early sales spike that settles before repeat demand is established. Seasonality can make three calendar months unusually strong or weak. Build the reserve from a month-by-month cash forecast rather than dividing an annual profit-and-loss statement by twelve.

The U.S. Small Business Administration’s startup-cost worksheet separates one-time expenses from monthly expenses and recommends counting at least one year of monthly costs, with five years as ideal. That is a different exercise from reproducing Item 7: it converts the disclosed opening estimate into a cash plan with timing.

Owner pay and personal liquidity

An “additional funds” line may cover store payroll without including a salary or draw for the owner. It also does not necessarily include the owner’s rent, health insurance, taxes, or household obligations while the business ramps. The FTC’s consumer guide advises estimating first-year operating expenses and personal living expenses for up to two years because break-even may take much longer than opening.

Keep business working capital and personal liquidity as separate schedules. That prevents an owner draw from disappearing inside “payroll” and makes it clear which cash is available to the company. Financing also changes the schedule: loan proceeds may fund eligible startup costs, but principal, interest, fees, and required equity affect cash after opening.

Royalty, brand-fund, and required local advertising are Item 6 costs. They belong in the monthly model from the first dollar of sales. They do not belong in Item 7 as a capitalized life-of-agreement total. GDK’s 2024 filing discloses a 6 percent royalty, 3 percent brand fund, and 2 percent local advertising (waived if the store joins a cooperative that can itself levy up to 2 percent). Shah’s discloses 5 percent, 1 percent, and 1 percent. Great Greek discloses 6 percent, 3 percent with a right to raise to 4 percent, and 1 percent. Those rates are for the operating model, not extra rows to add into the additional-funds cell.

Stress the timing, not only the total

Run at least three monthly cases: slower sales ramp, delayed opening, and a cost overrun that consumes part of the reserve before the first transaction. Include the payment dates for deposits, inventory, payroll, and card receipts. Recent franchisees are the check on how long they took to stabilize and which opening costs the filing’s reserve did not capture.

A delayed opening is a working-capital event even when construction stays inside its Item 7 range. Rent can start on delivery or on a fixed date; deposits and prepaid amounts are already gone; payroll for training may already be committed. GDK’s three-month additional-funds line will not absorb an extra two months of occupancy caused by a hood delay. Mad for Chicken’s wider three-month range might, or it might already assume a fully open restaurant. The footnote, not the width of the band, answers that.

Copy the filing’s period (3 months, or 0–6 months) onto the cash-flow header before entering any dollar amount. List every monthly cash out: occupancy, labor, goods, royalties and funds, insurance, technology, marketing, debt service, and owner draw. List every monthly cash in: card receipts net of holdbacks, catering deposits, and any landlord reimbursement still outstanding. Keep opening inventory and grand-opening spend on the pre-opening schedule unless the footnote says they are inside additional funds. Build a slow-ramp case and a delayed-opening case, each for the full stated period plus the delay. Compare the result with recent franchisees, as the FTC’s FDD walkthrough recommends, rather than with another brand’s additional-funds cell.

Card-processing holds and aggregator payouts are timing problems inside an otherwise ordinary month. A week of sales that sits in a processor’s reserve is not working capital the operator can spend. The Item 7 additional-funds footnote may assume cash sales; the actual store may not. Put settlement delay on the monthly calendar as a separate line, even when the filing did not name it.

The Item 7 working-capital figure should remain exactly what the filing states. The planning reserve should be independently rebuilt for the lease, opening date, financing, season, owner needs, and downside case. Those two numbers serve different purposes, and treating them as identical is the risk.