Franchise marketing funds: how to keep track of your contributions

Joint promotion is one of the benefits of belonging to a franchise network. That does not mean, however, that every mandatory marketing contribution will benefit your outlet. Before buying a franchise, check not only the contribution rate but, above all, the rules on spending and access to financial reports. Assess this separately, even if advertising is presented as part of the franchise package.

1. Establish what the marketing fund actually is

The word ‘fund’ does not necessarily mean that the money is held in a separate bank account, legally ring-fenced or reserved exclusively for advertising. In practice, its use is governed by the agreement and related documents. Distinguish between a fee for the franchisor’s marketing services and a contribution to a shared promotional budget for which accounts are provided.

Ask for clear answers to these questions:

• Who receives the contributions and who approves spending?
• Are separate accounting records kept for the funds?
• Do the franchisor’s own outlets also contribute to the budget?
• Are unspent funds carried forward to the next period?
• Can the fund cover head office salaries or administrative costs?

Do not assume that the absence of a separate bank account means something is wrong. What matters more is whether money flows can be traced and spending checked against the agreed purposes. A separate account does not offer complete protection either: it does not automatically safeguard the money if the organisation managing it becomes insolvent.

Ask for a sample financial report from an earlier period. If the franchise network is only just being established, assess the proposed budget and reporting template rather than expecting a track record that does not yet exist.

2. Separate brand promotion from network expansion costs

A nationwide campaign in Poland may build brand awareness without directly increasing sales at a particular outlet. That is not necessarily a drawback, provided this objective is clearly stated. Problems arise when a franchisee expects campaigns to attract customers, while their contributions mainly fund the recruitment of new franchisees.

Agree an exhaustive, or sufficiently precise, list of permitted expenditure. This might include advertising space, content and materials production, campaign management, effectiveness research and the upkeep of a website that directs customers to outlets. Specify separately whether the fund may cover franchise exhibitions, recruitment materials and promotion of the franchisor itself as the network operator.

Pay attention to transactions with related parties. If campaigns are run by an agency within the same group, ask how the provider is selected, how its fees are set and how these transactions are disclosed in reports. A relationship of this kind does not in itself imply abuse, but it does warrant greater transparency.

Also check the boundary between shared and local budgets. In addition to your contribution, must you pay separately for outlet advertising, leaflet printing or participation in promotions? Draw up a breakdown of all compulsory marketing expenditure. Otherwise, a seemingly modest contribution may obscure a significant share of your outlet’s operating costs.

3. Put information rights in writing, not just a promise of advertising

Poland has no separate franchise act or specific statutory system governing the accounting for franchise marketing funds. A franchise agreement is an ‘unnamed contract’ — one not specifically defined as a contract type in legislation — based on the principle of freedom of contract under Article 353¹ of the Polish Civil Code. That freedom is limited by legislation, the nature of the legal relationship and the principles of social coexistence. General rules on the performance of obligations and liability for breaches also apply.

Nor is there a general franchise-specific requirement to provide a disclosure document 14 days before the agreement is signed. A voluntary code of good practice is not a substitute for legislation. For that reason, it is worth expressly including a right to regular financial reports on the fund in the agreement, rather than relying solely on statements about working in partnership.

Agree how often reports will be produced, the deadline for making them available and their minimum content: opening balance, total contributions, expenditure by category, administration costs and closing balance. Include a procedure for raising questions and a deadline for replies.

Access to information need not mean unrestricted access to every invoice. One option is a review by an independent accountant bound by confidentiality. Specify who pays for it and what happens if expenditure that breaches the agreement is identified. Simply being able to receive a marketing presentation is no substitute for financial scrutiny.

4. Check the rules on changes and final accounting

Before signing the agreement, work through three scenarios: an increase in contributions, cancellation of a planned campaign and the end of your participation in the franchise network. For each, it should be clear who makes the decision, when you are informed and how the money is accounted for.

Do not assume that unused contributions will automatically be refunded when you leave. The agreement may provide for them to remain in the shared budget. Establish, however, whether you will receive a report covering the period when you paid contributions, and whether the network operator can demand additional payments for earlier campaigns after your franchise relationship has ended.

If you have concerns about the accounts, do not withhold mandatory contributions without first obtaining legal advice. A dispute over spending transparency does not necessarily mean that your obligation to pay has ceased.

Practical takeaway: before buying a franchise, secure three things: a list of permitted expenditure, a reporting template and a contractual right to verify the accounts. You can then assess not just the promise of joint promotion, but the specific arrangements for managing your contributions.