Franchising in Colombia: scrutinising the advertising fund

When buying a franchise in Colombia, it is worth distinguishing the right to use a brand from the money allocated to promoting it. If the offer includes an advertising fund, knowing the contribution amount is not enough: you need to understand how the money will be used, what controls apply and how it relates to your own marketing expenditure. Across a franchise network, shared campaigns need clear rules to avoid expectations that the contract does not support.

1. Identify what you pay and which costs are excluded

An advertising fund may be set up to finance shared brand activities through franchisee contributions. Check the offer and the contract to establish whether there is a fund, how contributions are calculated and what it covers; do not assume that all franchises operate in the same way.

Before comparing offers, ask for a clear distinction between these items:

• Royalties: the agreed ongoing payments for the franchise, which do not necessarily include advertising.
• Fund contributions: money allocated to the promotional activities defined in the agreement.
• Mandatory local advertising: expenditure you must incur directly for your outlet.
• Launch campaign: an initial outlay that may be charged separately.

Request a worked example showing each item without double counting. If contributions are calculated on sales, clarify how taxes, returns, discounts and sales through platforms are treated. If there is a fixed fee, check how often it is payable and how it can be adjusted.

The crucial question is: what will my total advertising commitment be, on top of royalties? Include the costs of producing advertising materials, hiring an agency or adapting materials where these are not covered.

2. Define what the fund can be used for

A phrase such as ‘brand marketing’ leaves too much room for interpretation. It is worth negotiating permitted spending categories, such as advertising placements, audiovisual production, design, customer research or maintaining shared promotional channels.

Ask explicitly whether the fund can pay for in-house staff, administration fees or services supplied by companies connected to the franchisor. These are not automatically inappropriate expenses, but they should be identified and subject to clearly understood conditions.

Also distinguish advertising aimed at buyers of products or services from advertising intended to recruit new franchisees. Expanding the network and generating sales for outlets are different objectives. If your contributions can fund both, you need to know before committing.

Ask for written answers to four questions:

1. Who prepares and approves the budget?
2. How is it decided which cities or channels receive investment?
3. What happens to unspent funds at the end of the period?
4. Can an additional contribution be required, and what procedure applies?

Do not confuse contributing to the fund with a guarantee that an equivalent amount will be spent on your outlet. A wider campaign may benefit outlets to different degrees. What matters is understanding the allocation criteria and not budgeting for guaranteed sales simply because you contribute.

3. Agree on useful reporting on income and expenditure

Franchisees remain independent businesses and need to be able to assess their financial obligations. However, this does not mean they automatically have unrestricted access to the franchisor’s accounts. The contract should therefore specify what information you will receive about the fund.

Propose regular reports covering:

• The opening balance and contributions received during the period.
• Expenditure grouped by campaign or category.
• Any administration charges.
• Outstanding commitments and the available balance.
• Activities carried out and the indicators used to monitor them.

Ask for the fund’s transactions to be recorded separately in the accounts. If a dedicated bank account is also agreed, make that obligation explicit: do not assume one exists or confuse it with a general legal requirement.

When assessing results, distinguish delivery from effectiveness. An invoice shows that advertising was commissioned, but does not in itself prove that your sales increased. Ask for indicators appropriate to each campaign, without treating a sales forecast as a guarantee of profitability.

4. Incorporate these terms into your Colombian contract

In Colombia, a franchise agreement is an ‘atypical’ contract: there is no specific law comprehensively governing this type of arrangement, nor a general mandatory pre-contractual disclosure regime equivalent to the US Franchise Disclosure Document. The general contract rules in Colombia’s Commercial Code and, where applicable, its Civil Code apply, including duties of good faith.

Do not therefore assume that a special rule determines how the fund must be managed. Negotiate its purpose, contribution calculations, reporting requirements and amendment procedure. Agreed contractual rights complement general legal protections; the contract does not override mandatory legal provisions.

Before signing, ask a lawyer to check that the commercial offer and the written obligations are consistent. Include provisions setting out how to raise queries or concerns, when responses are due and how any remaining balances will be treated when your participation ends, without assuming that they will be refundable.

Practical takeaway: do not settle for an advertising contribution percentage alone. Insist on a verifiable explanation of how much you will contribute, what it can be spent on and what information you will receive to check its use.