# Item 5, initial fees Ask what a franchise costs and most people quote the franchise fee. It is the number on the brochure, the number in the broker's email, and the number that matters least to whether the business works. Item 5 exists to make sure it is not the only pre-opening payment a buyer discovers, because the Item covers every fee paid to the franchisor or an affiliate before the outlet opens — the franchise fee, yes, but also development fees, training charges, opening inventory bought from the system, equipment or design packages sold by an affiliate, and deposits of any kind. ## Read the Item as a list, not a figure The disclosure has to state each fee, the amount or the formula, when it is due, to whom it is paid, and the conditions under which any part of it is returned. Copy those four columns before doing anything else. A single line reading "$40,000, payable on signing, non-refundable" is a complete answer. A page listing a franchise fee, a territory reservation deposit, a design fee and a mandatory opening-inventory purchase is also a complete answer, and it is a very different transaction. Two structural questions decide most of the reading. First, is the fee uniform, or does the Item disclose a range and the circumstances that move a buyer within it? Discounts for veterans, for existing operators, for conversions or for multi-unit commitments are common and must be described. Second, does the fee reappear per outlet in a development schedule, and if so on what timetable? The Great Greek Mediterranean Grill's FDD issued 17 August 2023 is the clean illustration of the first question. Its Item 7 franchise-fee row runs $35,550 at the low end against $39,500 at the high, and the low cell is a discount available to owners of affiliated brands. A first-time buyer pays $39,500. Anyone who budgets the printed low without the affiliation has budgeted someone else's deal, and the same mistake at scale is how a development pro forma goes wrong on its first line. GDK's FDD issued 3 September 2024 is the illustration of the second. The disclosed initial fee is $30,000, which reads as the least expensive entry among the larger filings here — until you notice that the Item 7 range of $690,500–$1,123,000 is stated per outlet inside a five-outlet minimum commitment. A standalone single-store purchase is not the offering. The fee per store is not the cash at signing. ## The disclosed fees, side by side | Brand | Initial fee | Source | | --- | --- | --- | | bluTaco | None | May 2024 comparative study of published FDDs | | GDK | $30,000 | FDD issued 3 September 2024 | | Shah's Halal Food | $30,000 | FDD issued 10 April 2024 | | Wienerschnitzel | $32,000 | May 2024 comparative study of published FDDs | | Döner Haus | $35,000 | 2026 Franchise Disclosure Document | | Mad for Chicken | $35,000 | FDD issued 12 March 2025 | | The Great Greek Mediterranean Grill | $39,500 | FDD issued 17 August 2023 | | Capriotti's | $40,000 | May 2024 comparative study of published FDDs | | Dog Haus | $40,000 | May 2024 comparative study of published FDDs | | Doner Shack | $40,000 | FDD issued 29 April 2025 | | 375° Chicken 'n Fries | $40,000 | FDD issued 30 April 2024 | | Crave Hot Dogs and BBQ | $45,000 | May 2024 comparative study of published FDDs | | Pepper Lunch | $50,000 | May 2024 comparative study of published FDDs | | The Halal Guys | $60,000 | May 2024 comparative study of published FDDs | The spread from nothing to $60,000 looks like a ranking and is not one. bluTaco's record discloses no initial fee, no required local advertising spend and no grand-opening requirement, and it also discloses no royalty rate and no fixed term — the agreement runs until either party terminates it. A zero in the fee column with a blank in the royalty column is not a cheaper deal; it is a deal you cannot price. The Halal Guys' $60,000 sits at the top of the column in a system of 93 outlets as of 2024, against Crave's $45,000 in a system of 26. Neither number tells you what the buyer receives for it. Item 11 does. ## Where the fee goes, and what it buys Item 5 identifies the payee, and the payee is not always the franchisor. Where an affiliate sells the equipment package, the design work or the opening inventory, that payment belongs here and also connects straight to Item 8's restrictions on sources. The Great Greek's Item 7 carries a restaurant package of $225,964–$248,560 and a design and project-management fee of $10,000; whether those are Item 5 payments to the system or third-party costs is exactly the sort of question the two Items answer together. Training is the other frequent overlap. Item 11 discloses hours; Item 5 or Item 7 discloses who pays for what. Shah's FDD issued 10 April 2024 shows travel to attend training at $2,000–$20,000 in the Item 7 table against 19 classroom and 85 on-the-job hours. Great Greek shows travel and living at $10,000–$20,000 against 60.25 classroom hours. Those are the buyer's costs, not fees to the franchisor, and confusing the two produces a budget that is wrong in both directions at once.
Before you leave Item 5 - List every pre-opening payment, its amount, timing, payee and refund condition. - Mark which payments go to an affiliate rather than the franchisor, then read Item 8. - Identify any discount and whether this buyer actually qualifies for it. - If there is a development schedule, write the fee per outlet and the cash due at signing as separate lines. - Confirm the fee is already inside the Item 7 total before adding it again. - Leave a blank where the filing is silent; a missing royalty is not a zero royalty.
## The misreadings this Item produces The most common is arithmetic: adding Item 5 on top of the Item 7 total. The franchise fee is normally a line inside that table, and double-counting it inflates a capital plan by tens of thousands of dollars in a way that survives all the way to a lender. The second is treating the fee as a proxy for quality or for support. Wienerschnitzel's $32,000 fee sits in a system franchising since 1965 with 48 classroom and 480 on-the-job training hours disclosed in the May 2024 comparative study; Crave's $45,000 sits with 15 and 37 hours in the same study. The larger fee does not buy the longer schedule. Cross-read Item 5 with Item 11 or the comparison is meaningless. The third is forgetting refundability. Item 5 must state the conditions on any refund, and "non-refundable" is a perfectly ordinary disclosure. What matters is the interaction with the [fourteen-day rule](/fourteen-day-rule/) and with site approval: money paid before a site is approved is money at risk against a location that may never be found. ## Questions to carry into the franchisor conversation Ask which payments in Item 5 are due at signing and which are due on site approval or at a construction milestone. Ask what happens to the fee if the buyer cannot secure an approved site within the deadline in the agreement. Ask, where a range is disclosed, precisely which condition moves you to the low end and whether you meet it in writing. Ask whether a multi-unit or development structure carries a discounted per-store fee and what the default consequences are if a milestone slips. Then ask for the clause number, because the summary is the Item and the obligation is the exhibit listed in Item 22. ## Related reading - [What it costs to open](/what-it-costs/) — Item 5 as one row inside the Item 7 total - [Item 6, other fees](/item-6-other-fees/) — what begins once the fee is paid - [Item 7, estimated initial investment](/item-7-initial-investment/) — the table this fee sits in - [Item 8, suppliers](/item-8-suppliers/) — when the payee is an affiliate - [Single vs multi-unit](/single-vs-multi-unit/) — a per-outlet fee inside a development schedule --- HTML: https://qsrfieldguide.com/item-5-initial-fees/