Marketing funds: establish governance before franchising

When you franchise an existing business, advertising no longer serves only the founder’s outlet. It starts to involve independent business owners with different expectations of campaigns and results. Within a franchise network, a marketing fund needs clear rules before the first contribution is collected. The challenge is not simply collecting payments: it is deciding who manages the fund, which expenses are allowed and how to account for the money spent.

1. Define the fund’s purpose

Start by separating three objectives: promoting the brand to consumers, driving sales at an individual outlet and attracting new franchisees. These activities may use similar channels, but they should not be treated as a single expense without criteria disclosed in advance.

Draw up a list of permitted uses. These might include campaign production, media buying, consumer research and tools used for network-wide marketing activities. For each category, specify who benefits and what documentation will demonstrate that the work has been delivered.

Record exclusions too. For example, the franchisor’s commercial expenses for selling franchises should not automatically be charged to a fund intended for consumer communications. Any provision for this type of spending requires prior transparency, consistency with the fund’s stated purpose and legal review.

Resolve issues likely to cause friction in advance:

• Will company-owned outlets contribute, and on what terms?
• Can regional campaigns receive funding from the shared fund?
• Will hiring an agency connected to the founder be permitted?
• Will unused balances be carried forward to the next budget period?
• Who will cover spending that exceeds the approved budget?

Do not promise individual returns in proportion to contributions. A brand campaign may benefit outlets unevenly, making the criteria for allocating funds particularly important.

2. Incorporate the rules into the franchise documents

In Brazil, Law No. 13,966/2019 governs business franchising. Article 2 requires the franchise disclosure document, known as the Circular de Oferta de Franquia (COF), to clearly state recurring fees and other amounts payable to the franchisor or third parties it designates, including any advertising fee or similar charge. It must specify how these payments are calculated and what they cover or are intended to fund.

The law also requires information on whether a franchisee council or association exists, its responsibilities, powers and arrangements for representing franchisees in dealings with the franchisor. It also requires details of the responsibilities for managing and overseeing the use of money in any existing funds. This does not mean that every franchise network must establish a council.

Set out this information consistently across the COF, the agreement and any separate fund rules. Specify how the money will be managed, which expenses are eligible, how financial statements can be accessed and the procedure for changing the rules. A separate set of fund rules does not replace the mandatory disclosures in the COF.

As a general rule, the COF must be provided at least ten days before a franchise agreement or preliminary agreement is signed, or any fee is paid to the franchisor or a person or company connected to it. Governance must therefore be established before payments are collected, not after the outlet opens.

3. Define who makes decisions and how they account for spending

For a small network, the structure can be straightforward. The essential point is to distinguish implementation, approval and oversight. The marketing team can propose campaigns; a designated person approves expenditure; and franchisees receive information according to a reporting schedule established in advance.

If there is a council, make clear whether its role is advisory, decision-making or supervisory. Define its composition, how representatives are selected, their terms of office, the quorum and how decisions are recorded. Avoid promising collective participation while the agreement reserves all decisions to the franchisor without explaining the distinction.

Adopt controls proportionate to the amount of money involved:

• budgets by campaign and expense category;
• separate identification of fund transactions in the accounting records;
• documentation of contracts, payments and delivery;
• criteria for engaging related parties;
• periodic statements of income, expenditure, commitments and the remaining balance.

A dedicated bank account can make reconciliation easier, but it is no substitute for proper accounting records. Present these mechanisms as governance choices, rather than suggesting that Brazil’s Franchise Law imposes a general requirement for a separate account or an external audit.

4. Test the reporting process before expanding

Use actual campaigns from the existing business to prepare a trial financial statement. Separate creative work, media spending and local implementation. Check whether someone else can understand how the money was used without relying on verbal explanations from the founder.

Test difficult situations too: contributions falling short of the budget, a cancelled campaign, late payments and a request for an exclusive benefit for a particular outlet. For each scenario, identify the applicable rule, who is responsible for the decision and what needs to be communicated.

When evaluating campaigns, distinguish between reach, enquiries received and sales that can genuinely be attributed to the activity. Avoid presenting every sale made during a campaign as a proven result of it.

Practical takeaway: before collecting the first contribution, have a clearly defined purpose, an agreed allocation of authority and a tested reporting model. Operational transparency helps preserve trust between those who manage the fund and those who finance the network’s shared marketing.