Franchise marketing funds: rules for operating in Croatia

When you turn an existing business into a franchise, shared advertising is no longer simply a matter of the owner deciding how to spend their own budget. Franchisees may help fund brand promotion, but they need to understand where their money goes. A well-structured marketing fund helps build trust across the franchise network and prevents differing expectations from turning into disputes. Draw up its rules before offering your first franchisee an agreement.

1. Separate brand promotion from franchise sales

Here, a marketing fund means an agreed arrangement for collecting and using money for shared promotion. The name alone does not mean that a separate legal entity has been established or that the money automatically has a special legal status. Your documentation should therefore describe precisely what the fund is and who manages it.

Start by distinguishing three types of expenditure:

• Shared marketing: customer-facing campaigns, a shared website, product photography or the production of promotional materials.
• Local marketing: activities for an individual outlet, such as an opening promotion or advertising in the local area.
• Franchisee recruitment: trade fairs, advertisements and presentations through which the franchisor expands the franchise network.

Do not quietly treat the cost of finding new franchisees as customer-facing promotion. If a particular expense is to be paid from shared funds, its eligibility must be clearly agreed in the contract and explained.

For an existing business, a useful first step is to review past marketing invoices. Identify which expenses served a single location, which benefited the whole brand and which supported the owner's expansion plans. This will help you avoid simply passing all previous costs on to future franchisees.

2. Set out the rules in the agreement and the procedures in a schedule

Croatia has no specific franchising law or mandatory franchise-specific pre-contractual disclosure form. This does not mean the relationship is unregulated. The Croatian Civil Obligations Act (Zakon o obveznim odnosima) is relevant to contractual obligations, including the principle of good faith and fair dealing. Tax and accounting rules also apply, alongside competition, advertising, consumer protection and data protection rules, depending on the activities involved.

Franchisors are not subject to a general statutory obligation to establish a marketing fund. If you introduce one, the rights and obligations must be set out in clearly drafted contractual documents. Before a prospective franchisee signs, explain the financial commitment, permitted uses and arrangements for overseeing expenditure.

The agreement should cover at least:

• who pays contributions and how they are calculated;
• deadlines for calculating contributions, making payments and reporting;
• which categories of expenditure are permitted;
• who approves the budget and selects suppliers;
• whether the franchisor may charge for administering the fund;
• what happens to unspent money and when participation ends.

A schedule to the agreement can include a practical campaign-planning procedure and a reporting template. Do not leave key financial obligations solely in an operations manual that the franchisor can amend unilaterally. If you envisage changes to contributions or permitted uses, the agreement should clearly define the procedure and limits for those changes.

3. Make every item of expenditure traceable

Maintain separate, detailed accounting records for the fund so that you can link contributions, approved activities and supplier invoices. A separate bank account can make tracking easier, but do not present it as a general legal requirement specific to franchises. An accountant should check the tax and accounting treatment of contributions and expenditure against the actual contractual arrangement; calling a payment a ‘fund contribution’ does not, in itself, determine that treatment.

Before the agreed planning period begins, prepare a budget setting out objectives, types of activity and expected costs. Also explain what happens if contributions fall short of the planned amount: will you scale back the campaign, postpone activities or have the franchisor cover the difference?

Make specific provisions for engaging related parties. If a company connected to the franchisor runs a campaign, explain that relationship, the scope of the service and how its fee is determined to franchisees. This reduces the risk of the fund becoming an opaque source of additional profit.

Reports should show the opening balance, money collected, expenditure by category, spending commitments and the closing balance. Images of advertisements are no substitute for a financial breakdown. Agree a procedure through which a franchisee can request clarification or a review of whether a particular expense is justified.

4. Agree measures of benefit without promising equal returns

A shared campaign will not necessarily bring the same number of customers to every outlet. Locations, customer habits and outlet capacity vary. Explain from the outset that contributing to the fund does not automatically entitle a franchisee to an equivalent amount of local advertising or guaranteed sales growth.

Choose indicators linked to the campaign's objective: customer enquiries, take-up of a promotional offer or visits to individual outlet web pages. Distinguish between what you can reliably measure and estimates of impact. If you track personal data, first establish responsibilities and a lawful basis for processing under the General Data Protection Regulation and Croatia's implementing legislation.

Provide a way to consult franchisees, such as regular reviews of plans and results. Clearly distinguish an advisory role from decision-making rights, so that meetings do not create expectations unsupported by the agreement.

Practical conclusion: before collecting the first contribution, prepare the fund rules, a sample budget and a reporting template. If a franchisee cannot understand from those documents what they are paying for and how expenditure is checked, the model is not yet ready to use.