Franchising in Colombia: how to assess the advertising fund

When buying a franchise in Colombia, the advertising contribution may seem like a minor charge. Yet it commits you to ongoing expenditure throughout the relationship and does not guarantee a dedicated campaign for your outlet. Shared advertising can add value to a franchise network when clear rules are in place. Before choosing a brand, make sure you understand who manages the money, what it can be used for and how you will be able to check where it goes.

1. Distinguish the advertising contribution from other charges

Royalties cover the items specified in the contract, whereas contributions to an advertising fund should have an identifiable promotional purpose. Do not assume that both payments cover the same things, or that the fund pays for all your outlet’s advertising.

Request a written breakdown that separates:

• Shared fund contribution: money allocated to joint campaigns, brand positioning or other expressly authorised activities.
• Mandatory local advertising: spending you must undertake directly in your area or at your outlet.
• Launch campaign: initial activities, including deliverables and who is responsible for them.
• Additional services: social media management, photography, design or tools that may be charged separately.

For each item, identify who receives the payment, how often it is due, the supporting billing documentation and the applicable tax treatment, with help from your accountant. If the contribution is calculated on sales, clarify how taxes, returns, discounts and cancelled orders are treated.

Ask for a complete worked example of the calculation. The aim is not to confirm a sales promise, but to check that two people can apply the formula and arrive at the same result.

2. Understand the legal rules and their limits

Colombia has no specific franchise law imposing a general pre-contractual disclosure regime or a mandatory disclosure document equivalent to those required in some other countries. Colombia’s Ministry of Justice describes franchising as an atypical contract, meaning one without a dedicated statutory framework.

The relationship is governed by the parties’ valid agreements and the applicable general provisions of the Commercial Code and Civil Code, subject to mandatory legal requirements. Good faith matters both during negotiations and when carrying out the contract: the absence of a mandatory disclosure document does not permit deception or the withholding of information in breach of that duty.

Being a franchisee does not, in itself, give you a special, automatic right to approve campaigns or audit the fund. These mechanisms therefore need to be negotiated and documented. Nor should you assume that contributions form a legally separate pool of assets or are held under a fiduciary arrangement: their legal nature depends on how the fund is structured.

Consumer-facing campaigns must comply with Law 1480 of 2011, the Consumer Protection Statute, including its rules on information and misleading advertising. This does not automatically make a franchise buyer a consumer in their dealings with the franchisor. Seek independent legal advice on advertising obligations and liabilities.

3. Investigate how the money is actually managed

Before signing, request the fund’s rules, its budget and a report on past expenditure, if available. A new brand may have no track record; in that case, assess the proposed plan and the reporting obligations it is willing to accept.

Look for specific answers to these questions:

• Who decides on campaigns and appoints agencies?
• Can the fund be used to pay internal salaries, commissions or administrative expenses?
• Can it finance the recruitment of new franchisees as well as attracting customers?
• Do company-owned outlets contribute, and under what rules?
• How are transactions with suppliers connected to the franchisor identified?
• What happens to unused funds at the end of the period?

A dedicated bank account can make monitoring easier, but it is no substitute for clear accounting records and does not, by itself, legally ring-fence the money.

Speak to existing franchisees as well. Ask whether they receive reports, can obtain explanations for discrepancies and see the announced campaigns actually carried out. Distinguish between an unsuccessful campaign and unauthorised expenditure: these are different problems requiring different responses.

4. Turn transparency into written commitments

Do not leave the fund’s management arrangements in a sales presentation. Include the contribution formula, permitted uses and the procedure for changing its terms in the contract or a binding appendix.

Negotiate regular reports comparing budgeted and actual expenditure, identifying administrative expenses and explaining accumulated balances. Add a reasonable mechanism for inspecting supporting records or requesting an independent review, while protecting confidential information and specifying who bears the cost.

It is also worth setting out how to raise objections, the deadline for responding and how incorrect charges will be corrected. Do not assume that a disagreement entitles you to suspend payments unilaterally.

Finally, distinguish verifiable commitments — running a campaign, supplying advertising materials or reporting on expenditure — from outcomes no one can guarantee, such as a particular increase in sales. Shared advertising does not necessarily benefit every outlet equally.

Practical conclusion: before buying, make sure you can explain how much you will contribute, what the money can finance and how you will check its use. If those answers depend on verbal promises, the negotiations are not yet complete.