Managing a Franchise Advertising Fund in the Philippines

When you franchise an existing business, you may need a pooled fund to promote the brand. But simply specifying the contribution in the contract is not enough. You also need to make clear who makes decisions, which expenses are permitted and how results will be reported. Within a franchise network, sound management of this fund helps safeguard the trust of every partner.

1. Keep the fund’s purpose separate from ordinary revenue

Before accepting the first contribution, draw up a written policy on how the fund may be used. The central question is: is it intended to attract customers to outlets, or to sell new franchises? These two purposes should not be casually mixed.

Permitted expenses might include product photography, producing materials for outlets to use and buying advertising space. Specify whether recruiting new franchisees, promoting the owner’s personal profile or covering general head office overheads falls outside the fund’s scope.

If staff time or campaign management fees will be charged to the fund, explain the basis for these charges and any limits. Do not hide them under a vague category such as “other expenses”.

Keep separate accounting records for the fund. A separate bank account is also advisable where practical, but should not be presented as a universal legal requirement. What matters is that every contribution, payment and remaining balance can be readily traced.

2. Set a budget and clear decision-making authority

Prepare a budget before the contribution period begins. Show expected contributions, planned campaigns, production costs for marketing materials and a contingency allocation. Distinguish the approved budget from actual spending.

There is no need to put every small advert to a vote. However, partners should know who has approval authority and when consultation is required. You could appoint a small group of outlet representatives to provide feedback without taking day-to-day decision-making away from the brand owner.

Include the following in the policy:

• Who requests, approves and pays expenses.
• When competing quotations must be obtained from service providers.
• How major budget changes will be communicated.
• How transactions with a company owned by a relative or a related business will be handled.
• What happens to any unspent balance.

For example, if the owner’s own agency will produce the advertising, the relationship and the basis for pricing should be explained. Such an arrangement is not automatically prohibited, but it requires careful scrutiny and clear documentation.

3. Align the policy with the contract and Philippine law

It is inaccurate to say that the Philippines has no franchise-specific regulation. Executive Order No. 169, series of 2022, establishes protections for micro, small and medium-sized enterprises that take up franchises. These include minimum requirements for franchise agreements, including full disclosure of fees, and the creation of a register of agreements with the Department of Trade and Industry (DTI).

Agreements covered by the order are also subject to requirements concerning written and notarised agreements. Ask a lawyer familiar with franchising to review the order’s scope and the current DTI registration procedure. Do not assume that ordinary business registration is sufficient.

There is no generally mandatory pre-contract disclosure document equivalent to the system used in the United States. However, this does not remove obligations under the order or the Civil Code concerning contracts, good faith and liability.

The agreement should specify the fund’s permitted uses, rights to inspect relevant records, how shortfalls or surplus balances will be handled, and how the policy may be changed. Do not use the operations manual simply to add financial obligations without an adequate contractual basis.

4. Report spending and results separately

Proof that money has been spent is not proof that a campaign has been effective. Prepare regular reports with two sections: where the money went and what results were observed.

In the first section, set out the opening balance, contributions received, spending by category, outstanding payment obligations and closing balance. In the second, show the campaign’s objective and appropriate measures, such as coupon redemptions or enquiries received by outlets.

Do not promise that every outlet will gain the same level of sales. Benefits may vary by location and customer profile. Explain whether a campaign is national, regional or aimed at selected outlets, and record the reasons for that choice.

Practical takeaway: Before collecting contributions, prepare the policy, budget and a sample report. If you cannot explain where the money will go and how its use will be reviewed, put the governance arrangements in order before launching the fund.