Buying a Franchise in Malaysia: Check Marketing Fund Contributions

Before buying a franchise, look beyond initial fees and royalties. Marketing fund contributions can also be a recurring commitment, payable even when campaigns do not increase sales at your outlet. When considering a franchise in Malaysia, you should understand not just how much you must contribute, but also what the fund is for, who controls it and how its use is reported. These checks help you assess what you actually receive in return for your marketing payments.

1. Distinguish the shared fund from outlet-level spending

Start by asking for a list of all marketing obligations in the offer. Do not assume that terms such as “advertising fee”, “brand fund” and “local marketing” refer to the same payment. The contract may use different terms for separate obligations.

For your review, separate these into at least three categories:

• Shared fund contributions: money collected for brand-wide or network-wide marketing activities.
• Outlet marketing expenditure: money you must spend yourself to attract local customers.
• Campaign-specific charges: additional payments for launches, promotional materials or particular activities, where required under the offer.

For each category, note who receives the payment, when payments begin and whether a minimum amount applies. Also ask whether opening costs already include launch marketing or whether this must be paid for separately.

For example, contributing to a shared fund does not necessarily fulfil your obligation to advertise your own outlet. If both are compulsory, include both in your cost assessment. Ask the franchisor to identify the clauses that distinguish these obligations, so you do not assume a payment is included based solely on a verbal explanation.

2. Understand the fund’s purpose and who makes decisions

A marketing fund may support efforts to build brand awareness, rather than simply bringing customers directly to your premises. You should therefore not equate a monthly contribution with a guaranteed number of customers or a particular return.

Ask for a written explanation of the types of expenditure the fund can cover. Does its scope include buying advertising space, producing product photography, managing social media, researching customers or paying agencies? If it also covers administration costs, ask how those costs are identified and reported.

Next, check how decisions are made:

• Who approves marketing plans and budgets?
• Can franchisees suggest campaigns or provide feedback?
• How are priorities set between areas and outlets?
• Do campaigns cover franchisor-owned outlets, and how is their participation explained?
• What happens to unspent funds?

These questions do not imply that every outlet must receive the same level of advertising expenditure. Network-wide campaigns may provide indirect benefits. However, buyers need to understand how benefits are allocated and what they can reasonably expect before agreeing to pay.

If the franchisor uses an agency connected to it, ask for an explanation of the selection process and the basis for its charges. That relationship does not in itself indicate a problem, but transparency helps you assess how the fund is managed.

3. Establish what reports you can receive

An impressive campaign presentation is no substitute for a report on how money has been spent. Before signing, ask for a sample marketing fund report that can be shared with franchisees, with confidential information removed if necessary.

A report useful to a prospective buyer should distinguish between total contributions collected, expenditure by category, the fund balance and activities carried out. Also ask what period it covers and how often reports are produced. Do not assume that an outlet sales report explains the position of the marketing fund.

Distinguish financial reporting on the fund from reporting on campaign effectiveness. The former explains how money is used. The latter helps demonstrate marketing results, such as customer enquiries or take-up of campaign offers. They answer different questions.

Ask how you can raise queries when a report is unclear. If you want a reporting schedule, a breakdown of expenditure or regular briefing sessions, ask for these to be set out in binding documents. Do not assume you are automatically entitled to every form of reporting you would like.

Avoid making a decision based on a single successful campaign. Ask how the franchisor assesses less effective campaigns and uses those findings to plan future spending.

4. Check commitments against the contract and the law

Malaysia regulates franchising through the Franchise Act 1998 [Act 590], as amended, including the 2020 amendments. Under Section 15, a franchisor must provide the franchise agreement and disclosure documents to a prospective franchisee at least 10 days before the agreement is signed.

Use that review period to compare the marketing obligations in the agreement, disclosure documents and fee schedules. Check whether the terminology, the fund’s purpose and additional charges are explained consistently. If there are discrepancies, request clarification and any necessary corrections before signing.

Ask a lawyer familiar with franchising to review the legal requirements relating to advertising and fund management that apply to the arrangement. Distinguish legal obligations from contractual improvements you would like to negotiate, such as reporting formats or feedback mechanisms.

Practical takeaway: Prepare a single sheet listing every marketing payment, its purpose, who makes the decisions and the reports you will receive. Do not buy on the promise that “the brand will be promoted” without understanding your financial commitments.