Buying a Franchise: Clarify How Marketing Funds Are Managed

Marketing contributions may seem small compared with the cost of buying a franchise, but the obligation to pay them can last throughout the contract term. The issue is not just how much you pay, but how the money is used and who is accountable for it. Within a franchise network, clarity over the management of shared funds helps maintain trust between franchisor and franchisees. Before you buy, make sure promotional promises translate into written obligations that you can check.

1. Distinguish shared contributions from outlet promotion costs

Do not assume that every payment labelled as marketing serves the same purpose. A franchise offer may include contributions towards brand campaigns, outlet launch costs and compulsory spending on local promotion. All three may apply at the same time, so map them out before agreeing to a budget.

Ask for a written breakdown explaining:

• The name of each charge and who collects it.
• Whether it is a one-off or recurring payment.
• How it is calculated, when it is billed and its tax treatment.
• The activities it funds and the costs the outlet must still cover separately.
• Who has the authority to change the amount or scope of the charge.

Look particularly closely at the possibility of duplicate charges. For example, does the shared fund already cover the creation of promotional materials, while the outlet is still charged a design fee for those same materials? Is the opening budget additional to, or part of, the regular marketing commitment?

Ask for a sample itemised bill with an explanation of each component. This will help you understand the actual payment burden, rather than simply reading terminology in a brochure. Use it to compare brands on a like-for-like basis.

2. Put the permitted uses of the fund in writing

Indonesia regulates franchising through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. This framework establishes the franchise agreement as the basis of the relationship between the parties, with equal legal standing and Indonesian law applying.

However, do not assume that franchise regulations automatically give you a right to marketing fund reports in a particular format, or guarantee that every outlet receives an equal allocation of promotional spending. Reporting rights, limits on how funds may be used and accountability arrangements need to be clarified in the agreement.

Ask the franchisor to set out the permitted expenditure. Examples include advertising space, campaign materials, social media management services and customer research. If the fund may cover marketing team salaries and administration costs, ask how those allocations are determined and whether agreed limits apply.

Also distinguish promotion aimed at attracting customers from promotion aimed at selling franchises to prospective new franchisees. These serve different purposes. You need to know whether outlet contributions may be used to recruit franchisees, rather than discovering this only after you have started paying.

Ask how service providers are selected when they are affiliated with the franchisor. Propose a requirement to disclose those relationships and explain the basis for considering their charges reasonable. The aim is not to prohibit all transactions with affiliated businesses, but to ensure accountability for how the money is spent.

3. Negotiate reports that are genuinely useful

A collection of photographs of activities is not enough to explain how money has been used. Equally, details of every transaction may be excessive for routine reporting. Look for a proportionate reporting format that allows you to assess whether the marketing plan is being delivered.

Propose regular reports covering, at a minimum, total contributions received, expenditure by category, opening and closing balances, and a summary of activities. If the fund is managed collectively for the whole network, make sure the reports clearly identify which parts of the network they cover.

For each major campaign, ask for an explanation of its objectives, timing, geographical coverage, promotional channels and performance measures. Performance does not always have to be measured by outlet sales: a brand awareness campaign may be assessed differently from a campaign designed to generate direct orders. What matters is that the measures are explained at the outset, rather than chosen afterwards to justify the spending.

Rights worth negotiating include:

• A reporting timetable and a list of report recipients.
• A channel for submitting questions and a deadline for responses.
• Explanations where actual activity or spending differs from the plan.
• Access to a summary of an independent review, if such an arrangement is agreed.

Do not confuse the right to an explanation with the right to determine every campaign. The franchisor can retain control of brand strategy while franchisees receive adequate information about their contributions.

4. Check how balances are handled and how outlets benefit

Ask questions based on practical scenarios: what happens if a campaign is cancelled, money remains unspent at the end of the year, or your outlet is outside the campaign area? Ask whether the balance is carried forward, redirected to other activities or handled in another way.

Also clarify how contributions are treated when the franchise relationship ends. Do not assume that any remaining money can automatically be refunded to individual franchisees. If the fund is collective, there may be no refund mechanism; you should know this before you pay.

Finally, ask for a report from a previous period, if one is available. Compare actual practice with the promises in the draft contract. For a new programme, ask for a sample reporting format and a spending plan, without treating them as evidence of success.

Practical step: before buying, make sure you can answer four questions: how much must you contribute, what will the money be used for, when will you receive reports, and how can you request an explanation? If the answers are still only verbal promises, negotiate written terms first.