How this checklist works
This is a fixed list of 38 items in seven sections, ordered the way a first purchase actually unfolds: fit, money, how franchising works, brands, discovery day, advisers, then the mistakes beginners repeat. It does no calculation and the boxes are not saved, so print it or email yourself a copy. Most items are prompts you answer from your own situation. Items tagged "Ask your attorney" or "Confirm with a lender or CPA" depend on state law, your finances or a lender's rules.
Two kinds of statements sit side by side in the list, and it helps to tell them apart. Some are rules you can verify: the FTC's disclosure timing and the SBA's loan requirements, covered below. Others are rules of thumb, such as weekly hours, months to steady cash flow, liquid-capital minimums and credit scores. Those vary by brand and lender and are not tied here to a primary source, so use them for orientation and let the FDD and your lender's written terms override them.
What the money section leaves out: a worked example
The FDD's Item 7 is the franchisor's estimate of your initial investment, and it is only part of what you need in the bank. Under the FTC'sFranchise Rule (16 CFR 436.5(g)) it must include an "Additional funds" line for expenses in an initial period of operations, and the rule calls a reasonable period "at least three months or a reasonable period for the industry." Your own ramp to break-even may run longer, and your household still has to eat. The FTC'sconsumer guide suggests estimating your operating expenses for the first year and your personal living expenses for up to two years, and asks how much money you can afford to lose.
Here is one hypothetical buyer. None of these figures describes a real brand. Item 7 shows a range of $180,000 to $320,000, and the sensible planning number is the high end, $320,000. The franchisor's additional-funds period is three months, but this buyer's own forecast has cash running short by $5,000 a month for nine months. Six of those months fall outside Item 7's period, so 6 × $5,000 = $30,000 more is needed. The household spends $4,500 a month, so twelve months of living costs is 12 × $4,500 = $54,000, and the FTC's two-year outer figure is $108,000.
- Project cost to plan around: $320,000 + $30,000 = $350,000.
- If financed through an SBA 7(a) loan, the lender's manual, SOP 50 10 8.1(effective October 1, 2026), treats a start-up as a business that has been generating revenue for a year or less and sets an equity injection of at least 10% of total project costs, defined as all costs required to become operational. Ten percent of $350,000 is $35,000 as a floor. A lender may ask for more.
- Living-expense cushion held outside the project: $54,000 for twelve months, or $108,000 for twenty-four.
- Cash this buyer needs on hand at the floor: $35,000 + $54,000 = $89,000, and $35,000 + $108,000 = $143,000 with the two-year cushion.
The lesson is that "I qualify because the loan covers the rest" undercounts what the plan needs. The gap between the Item 7 total and your real cash requirement is the ramp beyond the disclosed period and your household, neither of which the franchisor's table shows.
Where the equity comes from matters too. The same SOP counts cash that is not borrowed, and cash from a personal loan only when repayment can be shown to come from a source other than the business's cash flow, and it says a salary the business pays the owner does not qualify. A home-equity line you plan to repay from the shop's income therefore does not fit that test as written, so raise this with the lender before you plan around it.
Retirement funds and other structures
The list warns that using retirement money is high-stakes. The IRS defines a rollover as business start-up (ROBS) as an arrangement in which prospective business owners use their retirement funds to pay for start-up costs, and says such plans, "while not considered an abusive tax avoidance transaction, are questionable because they may solely benefit one individual." Itscompliance project page (last reviewed November 16, 2025) lists problems it has found, including valuation of assets, and says a plan that is run in a way that results in prohibited discrimination or prohibited transactions can be disqualified. That is why the list sends this to a CPA or an ERISA-aware attorney rather than to a salesperson.
Two rules a first-timer should be able to state
First, timing: the franchisor must give you its current FDD at least 14 calendar days before you sign a binding agreement or make any payment to it or an affiliate (16 CFR 436.2(a)), so a deposit is a payment. Second, earnings: the FTC's guide says any claim about sales, income or profits must be in Item 19, with narrow exceptions written into the rule, so a verbal figure is a warning sign. For SBA financing, the SOP says a brand that meets the FTC definition of a franchise must be on the SBA Franchise Directory to obtain SBA financing, and that a listing is not an endorsement of the brand's success. It also says any individual owning 20% or more of the borrower must give an unlimited full guaranty.
Sources retrieved September 29, 2026. Education only, not legal or financial advice.