Franchises in Guatemala: scrutinise the advertising fund

Buying a franchise in Guatemala may involve contributing to an advertising fund, as well as paying royalties and promoting your own outlet. That contribution does not guarantee a campaign specifically for your outlet or an increase in sales. Before joining a franchise network, make sure you understand what you are funding and turn sales promises into commitments you can verify.

1. Distinguish the shared fund from local advertising

The advertising fund pools contributions for shared activities: brand campaigns, photography, digital adverts or promotional materials. Local advertising, by contrast, aims to attract customers to your outlet. The contract may require you to pay for both, even if the sales presentation highlights only one.

Ask for a written breakdown separating:

• Contribution to the shared fund: how it is calculated, how often it is payable and the payment deadline.
• Mandatory local spending: eligible activities and the documents needed to demonstrate expenditure.
• Launch campaign: budget, responsibilities and included deliverables.
• Additional costs: production, agencies, digital tools or adaptations to materials.

Clarify whether launch spending counts towards your local advertising obligation. Also ask whether a campaign paid for directly by your outlet can be offset against any contribution. Without express authorisation, do not assume these amounts can be offset.

If the fund covers several countries, ask how spending in Guatemala is decided. An international campaign may strengthen the brand without immediately bringing customers to your outlet; that distinction should be clear before you assess the cost.

2. Understand the protection offered by Guatemalan law

Guatemala has no franchise-specific law or general mandatory pre-contractual disclosure regime equivalent to the franchise disclosure document required in some other countries. You should therefore not assume that you will automatically receive historical information about the fund or a detailed breakdown of its expenditure.

The relationship is governed primarily by the Commercial Code, Decree 2-70, and, where supplementary provisions are needed, by the Civil Code, Decree-Law 106. The Commercial Code incorporates the principle of good faith in the interpretation and performance of contracts. However, that principle is no substitute for a precise clause covering contributions, permitted uses and the information the fund administrator must provide.

The Industrial Property Law, Decree 57-2000, is also relevant to the use of trade marks and other distinctive signs in advertising materials. It does not, in itself, establish a system for administering the fund. The Consumer and User Protection Law, Decree 6-2003, is relevant to promotions aimed at the public and the information provided to end consumers.

Accordingly, distinguish between rights expressly agreed in your contract and voluntary good practice. An advertising committee or regular report may be useful, but neither should be presented as a specific legal requirement for all franchises. Seek a legal review of the contract and of any campaigns subject to particular requirements.

3. Check how the money is managed

If the fund already exists, ask for its budget and a summary of income and expenditure for previous periods. Aim to understand where the money goes, rather than simply looking at examples of appealing adverts. If the network is just starting out, request an initial budget and an activity schedule, clearly identified as projections.

Before signing, agree clear answers to these questions:

• Who receives contributions and who authorises payments?
• Will separate accounting records be kept so that the fund can be identified?
• What administrative expenses can be charged to the fund, and how are they calculated?
• Can companies connected to the franchisor be hired, and how will that relationship be disclosed?
• Do company-owned outlets contribute under the same rules?
• What happens to unused balances at the end of each period?

Also establish whether the fund can pay for advertising to recruit new franchisees. This is a different purpose from attracting consumers to existing outlets and warrants an explicit decision.

Negotiate regular reports showing contributions received, expenditure by category, outstanding commitments and the available balance. An advisory committee can help franchisees have a say, but it must be clear whether its decisions are binding or merely recommendations. Nor should you confuse transparency with a promise that you will individually recoup everything you contribute.

4. Calculate the cost of participating in campaigns

Your contribution to the fund does not always represent the full cost of advertising. A promotion may require discounts, special packaging, free products or extra staff. Even if the campaign is funded centrally, your outlet may have to bear these costs.

Prepare a budget that brings together the shared fund, local advertising, launch spending and the operating costs of promotions. Test a scenario in which sales fall below expectations: some obligations may remain unchanged even if your revenue declines.

Agree how far in advance you will receive the campaign schedule, who funds discounts and what procedure applies when a promotion cannot be carried out because of stock shortages or local restrictions. Also clarify who approves your adverts and how quickly they must respond.

Practical conclusion: before buying, insist on an advertising schedule to the contract defining contributions, permitted uses, regular reporting and responsibilities for promotions. Assess the fund on the clarity of its rules and its full cost, not just the creativity of its campaigns.