Franchise marketing funds: rules for a shared budget

When you expand an established business into a franchise network, marketing changes: you are no longer making budget decisions solely for yourself. Franchisees contribute to a shared brand and need to know what their money pays for. The contribution amount is only part of the picture. Before signing the first agreement, draw up rules for managing the marketing fund that distinguish shared campaigns from head office costs and allow you to demonstrate how the money is actually used.

1. Define what the shared fund actually means

The label ‘marketing fund’ does not, in itself, determine how the money is treated for legal or accounting purposes. The agreement should therefore explain who receives contributions, who decides how they are used and how they are recorded. Do not promise that funds will be legally segregated or held on trust unless your actual arrangements support this. A separate bank account can improve transparency, but does not by itself make the money legally separate from other assets.

Start by dividing marketing activities into three categories:

• Shared brand promotion: for example, developing campaigns, managing the shared website or buying advertising space.
• Local outlet promotion: for example, local events, leaflet distribution or partnerships with local organisations.
• Head office’s own promotion: primarily recruiting new franchisees or presenting the business to investors.

Specify how each item will be funded. Do not automatically treat recruiting new partners as a shared fund expense simply because expanding the network may indirectly strengthen the brand. If contributions are also intended to finance this activity, that must be expressly and clearly agreed in advance.

Address the work of your in-house marketing team separately. Partners should know whether the fund pays only for external advertising or also for internal work, how those costs are allocated and what limits apply.

2. Base the rules on the agreement, not informal promises

The Czech Republic has no dedicated franchising legislation or statutory framework for managing franchise marketing funds. A franchise agreement is usually entered into as an innominate contract — one not specifically defined by law — under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. General rules on contractual obligations, good faith and liability for breaches of duty therefore apply. The accounting and tax treatment of contributions must be assessed on the basis of the actual arrangements, rather than the fund’s name.

There is also no specific requirement to register franchise agreements or provide a statutory franchise disclosure document. However, general pre-contractual disclosure duties still apply. Present the key rules governing shared marketing to prospective franchisees in good time so that they understand the commitment they will be taking on.

The agreement or a binding schedule should cover, in particular:

• permitted expenditure and expressly prohibited uses of the money;
• authority to approve the budget and responsibility for record-keeping;
• rules for unspent balances and any funding shortfall;
• the scope of reporting and opportunities to check supporting records;
• arrangements for settling accounts when a partner leaves or the fund is wound up.

Also address franchisor-owned outlets explicitly: whether they contribute, on what basis and how their participation is reported. Do not create an expectation that unspent contributions will automatically be refunded unless you intend to grant that right in the agreement.

3. Set a budget and provide for appropriate partner involvement

Before the budget period begins, prepare a plan covering campaigns, expected costs and a contingency reserve. State the objective of each major activity: raising awareness, attracting website visitors or promoting a particular offer. Simply ‘strengthening the brand’ is too vague a basis for individual spending decisions.

The decision-making process need not be complicated. Head office can approve routine expenditure within the budget, while exceptional projects follow a pre-agreed review process. A franchisee advisory group can help bring local experience into the discussion. Make it clear, however, whether the group merely makes recommendations or has actual approval rights.

Bear in mind that outlets have different needs. A campaign aimed at visitors to major cities may do little for a partner in a small town. Shared marketing need not bring every outlet the same number of customers, but support should be allocated according to criteria that can be explained, rather than personal relationships.

If the fund buys services from a related company, it is advisable to disclose the relationship and provide evidence that the price is reasonable. This helps prevent concerns that the shared budget is primarily another source of income for head office.

4. Report on both money and results without misleading promises

Prepare a simple, regular statement showing the opening balance, contributions received, expenditure by category, services already commissioned but not yet paid for, and the closing balance. Include a brief evaluation of the campaigns. Distinguish between advertising reach, website traffic, enquiries and actual sales: these are not interchangeable measures of success.

Designate a contact person for questions and establish a procedure for disputed expenditure. Allowing scrutiny does not have to mean unrestricted circulation of every invoice. You can agree access to relevant supporting records subject to confidentiality safeguards, or independent verification under predefined conditions.

Before accepting the first contribution, try preparing a sample statement using the marketing expenditure of your existing business. If you cannot separate shared advertising from franchisee recruitment and routine overheads, your record-keeping is not ready.

Practical takeaway: Develop the fund’s purpose, binding decision-making rules and a reporting template as a single package. Above all, trust within a franchise network grows when partners can verify where their shared money actually goes.