Buying a franchise: how to assess the marketing fund

Shared marketing can be a major advantage of joining a franchise network, but a mandatory contribution does not, in itself, tell you what you will receive. Before buying a franchise in Croatia, check how the money is collected, who decides how it is spent and whether you can review the results. The aim is not to guarantee the success of every campaign, but to agree clear rules for managing shared marketing funds.

1. Separate the shared fund from your own advertising

The term “marketing fee” can cover several different obligations. One is a contribution paid to the franchisor for shared campaigns; another is mandatory local advertising that you pay for directly; a third is the cost of materials or promotions for your opening. Do not assume that one payment replaces the others.

Ask for a breakdown of all marketing obligations in the contract and its schedules. For each item, establish who receives the money, when payment is due, what it may be used for and how compliance must be demonstrated. In particular, check whether your own social media posts and agency work count towards the mandatory local budget, or whether only paid advertising qualifies.

A marketing fund is not necessarily a separate legal entity or a separate bank account. Ask whether the franchisor records these funds separately in its accounts and can show the opening balance, contributions, expenditure and remaining balance. Calling something a “fund” does not guarantee that the money is kept separate from the franchisor’s other business activities.

Prepare a consolidated annual breakdown for your financial plan. Include shared contributions, local campaigns, content production and any compulsory promotional materials. This will help you avoid counting the same cost twice or overlooking an obligation that only appears in the operations manual.

2. Establish what the fund may pay for and who decides

Ask for written rules on how the fund may be used. Broad wording such as “for brand development” leaves considerable room for interpretation. It is more useful to specify permitted categories: buying advertising space, campaign production, customer research, maintaining the shared website or other clearly defined activities.

Specifically, ask whether the fund may cover:

• salaries of the franchisor’s marketing staff;
• administrative costs and fund management fees;
• services provided by agencies connected to the franchisor;
• campaigns to recruit new franchisees;
• promotion of franchisor-owned outlets.

These items are not automatically prohibited, but they should be transparent and clearly addressed in the contract. Advertising to attract new franchisees is not the same as attracting customers to your outlet.

Check who approves the annual plan and whether franchisees have an advisory role. If there is a marketing council, ask for its rules of procedure: how members are selected, what information they can access and how much authority their decisions carry. Taking part in discussions is not the same as having voting rights or a veto.

Also agree a procedure for changing how funds are allocated during the year. For example, an agreed notice period and an explanation of any significant change will allow you to adjust your local plan, even if the franchisor makes the final decision.

3. Check the benefits for Croatia and your right to reports

Within an international franchise network, it is important to distinguish global brand recognition from activities that reach Croatian customers. Ask whether you are contributing to a global, regional or Croatian budget, and how allocations between markets are decided.

Do not necessarily expect every euro you contribute to be spent in your town or city. A shared campaign may benefit the whole network. Nevertheless, ask for an explanation of the allocation criteria and examples of activities suited to the language, customer habits and availability of your products in Croatia.

Before signing, ask for a sample report covering a previous completed reporting period. If the fund is new, request a template for future reports and an initial plan. A useful report should distinguish financial information from campaign performance indicators: how much was spent is not the same as how many customers were reached or encouraged to buy.

Try to secure the following in the contract:

• regular statements of contributions, expenditure and balances;
• explanations of significant departures from the plan;
• a procedure for raising questions and a deadline for responses;
• scope for independent verification, with safeguards for confidential information;
• rules for carrying unspent funds forward to the next period.

Also check what happens to any remaining money if the fund is wound up or you leave the network. Do not assume you will receive a refund unless this is provided for in the contract or required by the applicable rules.

4. Turn promises into contractual rights

Croatia has no dedicated franchise law and no specific mandatory, standardised pre-contractual franchise disclosure document. A franchise agreement is an innominate contract, meaning it is not a specifically defined contract type under Croatian law. The Croatian Obligations Act (Zakon o obveznim odnosima) is particularly relevant to contractual obligations, performance and liability.

Do not therefore assume that being a franchisee automatically gives you the right to approve the marketing budget, audit the fund or recover unused contributions. These rights should be clearly set out in the contract. The European Code of Ethics for Franchising is a self-regulatory standard for the franchise sector, not Croatian law.

Have a lawyer review the fund rules alongside the contract. Ask for a clear procedure to address failures to provide reports or spending outside the agreed purposes. Do not stop making payments on your own initiative without legal advice, as doing so could put you in breach of your own obligations.

Practical takeaway: before signing, secure a written statement of the fund’s permitted uses, a sample financial report and a contractual right to regular information. Shared marketing is only as valuable as its rules are clear and verifiable.