How to Read Franchise Fees Lists and Documents

If you're one of the many Americans looking to open a franchise, one of the first things you'll need to understand is the fee list. These fees directly impact your startup costs, but for newcomers, the list can look like alphabet soup (even experienced franchisees sometimes find it confusing).

This guide will walk you through how to read franchise fee lists and related documents in a clear, straightforward way. You'll see where each fee appears in the Franchise Disclosure Document (FDD) and how those line items fit together.

How to Read Franchise Fee Lists and Documents

The FDD is a legal document, but it's also a map. Knowing which items to pull up first helps you better understand your project costs, ongoing obligations, and realistic working capital.

When you open up the FDD, there are five items that you want to prioritize regarding fees. These are the ones that tell the money story.

Fee-Related FDD Items

Glossary of Common Fees/Costs, What They Mean, Where to Find Them

Depending on context, you will see many of the same terms throughout the FDD, but the definitions may not always be identical. Reference this table to help translate legal language into plain terms and spot the lines that impact your capital the most.

When in doubt, ask the franchisor to show where a fee is defined and how it is calculated on an invoice.

Fee Glossary

*Portion of buildout covered by the landlord's allowance instead of your own capital.

Turning the Fee List into a Real Startup Budget

The fee list tells you what you owe, while a startup budget tells you what you need to raise and when you need it by. You'll need to reconcile the FDD with quotes from vendors, landlord terms, and your local market.

The goal is two numbers you trust: Total project cost and initial cash needed.

Here's an example of how you can get there:

1. Start with Item 7's Table: Copy every line into a worksheet, keeping the low and high range intact.
2. Estimate Your Specific Costs: The FDD provides baseline ranges, but actual expenses vary widely by market. A franchise opening in a major metro with high rents and property costs may lean toward the upper end of estimates, while smaller cities may fall closer to the lower end. Understanding your local conditions helps you land on a more realistic number.Refine Buildout Expectations: Rather than securing contractor bids before committing, focus on how your location and market dynamics may influence buildout costs. Dense urban areas often involve higher labor and permitting costs, while secondary markets may be more affordable.
3. Prepare for Variability: The FDD gives a snapshot, but early operations rarely play out exactly as modeled. Think of it as planning for the best case while recognizing that it may take longer to reach steady performance. Being prepared helps you manage through the ramp-up period with confidence.
4. Layer in One-Time Fees from Item 5 and Ongoing Fees in Item 6: You'll need these to model cash flow and breakeven estimates, even though they do not all hit on day one.
5. Estimate total project cost and cash need: Then decide what portion you will need to finance.

Use these formulas to help guide you:

Total Project Cost =

Buildout + Equipment + Inventory + Signage + Fees + Permits + Initial Franchise Fee + Pre-opening Rent + Training Travel + Grand Opening Marketing + Contingency + Additional Funds

Initial Cash Need =

Total Project Cost − (Loan Proceeds + Landlord tenant improvement (TI) Allowance + Any Rebates or Credits)

Example with Hypothetical Numbers

Of course, numbers will move based on concept, market, lease, and other factors. The point of this example is to show how a few realistic assumptions shift the total and why financing is commonplace among franchisees.

Tip: Focus on the ranges more than the exact figures and notice how contingency is added to hard costs rather than fees alone.

Worked Example With Hypothetical Numbers

Further, if your landlord gives you a $60,000 TI allowance and you secure $300,000 in SBA 7(a) financing, your initial cash need is roughly:

416,000 − 300,000 − 60,000 = $56,000 at the low end.

This is why, while being important, the fee list does not tell the whole story. The full budget plus your financing plan does.

How People Actually Fund Startup Costs

There is a common misconception that you need to pay for everything up front, in cash. However, franchisees rarely take this route. Most owners instead build a capital stack that blends debt, landlord contributions, and (sometimes) retirement funds.

The right mix keeps reserves healthy and reduces the chance you stall out right after opening.

SBA 7(a) or 504 loan. Bank partners lend against your total project cost. You bring a down payment and collateral where required. Equipment financing or leases. Spread the cost of big equipment over time. ROBS (Rollover for Business Startups). Use retirement funds without early withdrawal taxes or penalties. Get a specialist and legal counsel. Home equity or portfolio lines. Lower rates, but keep in mind that you are putting your home or other assets down as collateral. Franchisor or supplier financing. Some brands help with fees or equipment. See Item 10. Landlord TI allowances. Reduce your outlay for buildout. Negotiate this hard.

Pick a structure that covers buildout, launch, and the ramp to breakeven.

Reading Item 6 Without Missing the Finer Details

Your monthly cash flow depends on how the brand defines its fees. Two brands can both say “6 percent royalty,” but out-of-pocket costs can differ significantly once discounts, gift cards, and returns are factored in.

Be sure you read the footnotes, ask for examples, and run mock invoices so you know how the math behind your returns works on slow weeks, busy weeks, and everything in between.

Royalty base. Is it gross sales before discounts, after coupons, or net of returns? Minimum royalties. Are there minimums if sales are slow? Brand fund rules. How is spend audited and what reports are provided? Local ad requirements. Is the minimum a percent, a flat number, or a launch period special? Tech stack. What software is required, what is optional, and what third-party costs sit outside the monthly tech fee?

Red Flags to Watch For

FDDs are complex documents, even when you think you know what you're looking at. While the format is standardized, the specific details within each item are not. Problems can arise when terms are vague, costs are concentrated with a single vendor, or working capital is thin. If you see one or more of the following red flags, slow down and get answers in writing.

Uncapped or ambiguous fees in Item 6. If it says “as determined by franchisor,” ask for a range and examples. Thin “Additional Funds.” If Item 7 shows two months, ask existing owners if they needed more. Single-source vendors with above-market pricing. Check Item 8 and talk to franchisees about real invoices. High transfer or renewal fees. These matter when you sell the business or continue ownership beyond the life of the initial contract. No lender relationships. Strong brands have lender partners who know the model.

What to Do When the Numbers Feel Overwhelming

Even seasoned operators will tell you that reading a franchise fees list and documents can feel like juggling a law book, a construction estimate, and a business plan all at once. It is a lot.

And it is normal to wonder if you're missing anything or to second-guess whether the startup costs you built are actually complete.

That's why Franchise.com exists. We help prospective franchisees sift through the static, line up the right information, and connect with the brands that best align with their goals.

If you're confused, stuck, or just want another set of eyes, we're happy to help.

Our team can point you toward: Franchises that match your capital range and goals. Lenders who already understand franchise models. Resource to make sense of the FDD without paying for a law degree.

This is your journey, but that doesn't mean you have to walk the path alone. Making smart decisions often starts with the right support. If you're ready to take the next step, start your search on Franchise.com today.