Buying a franchise: how to assess the shared marketing fund

Joint advertising can be a significant benefit of joining a franchise network. But an obligation to contribute to marketing does not, in itself, tell you what you will get for your money. Before buying a franchise, look beyond the size of the contribution and examine the rules governing how it is spent, reported and scrutinised. These determine whether you will be funding brand development under clear rules or paying for costs you cannot see.

1. Find out what the marketing fund actually is

The term ‘marketing fund’ does not, on its own, guarantee a separate bank account or ring-fenced assets. It may simply be a contractual label for contributions that the franchisor collects and records in its own accounts. Ask who receives the money, who commissions the advertising and how individual expenses can be traced.

Distinguish between three things: shared brand promotion, local advertising for your outlet and its launch campaign. Contributions to the shared budget may not cover the latter two. If you will have to pay for them separately, you need to know this when drawing up your business plan.

In particular, ask:

• Do the franchisor’s company-owned outlets also contribute, and under what rules?
• Is the budget intended solely for the Czech Republic, or does it cover other countries too?
• Can it be used to pay head office staff, agencies or the costs of managing the shared website?
• Does it also fund the recruitment of new franchisees?

The last question matters: recruiting new members to the franchise network is not the same as attracting customers to existing outlets.

2. Ask for evidence of how the money is actually spent

Before signing, request the latest completed statement of shared marketing income and expenditure, the current plan and an anonymised example of a regular report sent to franchisees. This is not a legally prescribed set of documents, but information you should request as part of your own due diligence.

For an established brand, it should be possible to link planned activities to actual spending and results. A presentation showcasing adverts is not enough. Look for a breakdown covering media buying, content creation, agency fees, internal costs and any other items. Commercially sensitive information can be made available under a confidentiality agreement or in summary form.

A new franchise network may have no track record. That makes a written budget, a process for approving expenditure and a deadline for the first financial statement all the more important. A promise of ‘strong marketing’ is no substitute for a spending history.

Also look out for suppliers connected to the franchisor. Such arrangements are not necessarily disadvantageous, but ask how the reasonableness of their prices is assessed and who approves the work.

3. Turn transparency into contractual rights

The Czech Republic has no specific franchising legislation. A franchise agreement is usually an agreement not specifically defined by law, concluded under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on its content, it is also subject to other general rules, including competition and intellectual property law.

There is no specific mandatory pre-contractual disclosure document for franchises, nor is registration of franchise agreements compulsory. However, the Civil Code’s general pre-contractual information duties still apply. The absence of franchise-specific legislation does not mean that a franchisor may provide misleading information during negotiations.

Make regular financial reporting on the marketing fund an express contractual requirement. Do not assume that paying a contribution automatically gives you unrestricted access to head office accounts. The agreement, or a binding schedule to it, should cover:

• permitted uses of the money and budget approval;
• the frequency, content and deadlines for reports;
• the right to raise questions and a deadline for responses;
• procedures for dealing with discrepancies, including independent verification where appropriate;
• how unspent funds and any shortfall will be handled.

Even a separate bank account does not, by itself, mean that the money is legally protected from the franchisor’s creditors. If this protection is essential to you, have a lawyer assess the specific arrangements.

4. Check the benefits for your outlet

National advertising will not necessarily deliver the same results for every outlet. That alone does not indicate poor financial management. However, you need to understand how head office selects regions, advertising channels and the products it promotes.

Ask for an example of a campaign, from the initial brief through to evaluation. Does the network track only impressions, or also website visits, enquiries and take-up of the offer? If advertising directs customers to a shared online shop or booking system, find out how a customer or order is allocated to a local outlet. Advertising reach does not automatically translate into turnover for your business.

Also clarify whether franchisees can propose campaigns and comment on the budget. An advisory group may improve communication, but it may have no decision-making authority unless this is set out in the contract. Do not mistake an invitation to a marketing meeting for a right to approve expenditure.

Practical takeaway: Before signing, ask for a sample financial statement, a list of permitted expenses and a contractual right to explanations of any discrepancies. Base your decision on verifiable rules for managing the money, not just attractive examples of advertising.