Buying a franchise: assessing the advertising fund

When buying a franchise in Portugal, knowing the monthly advertising contribution is not enough. You need to understand who decides how the money is used, which expenses it can cover and what information each franchisee receives. Joint promotion can benefit the whole franchise network, but it requires clear rules. This guide will help you assess the advertising fund before making a commitment.

1. Identify everything you will have to pay

The advertising contribution may appear in the contract as a marketing fund, communications fee or promotional levy. The name alone does not tell you whether the money is separately identified in the accounts, held in a separate bank account or simply paid to the franchisor as a fee intended to finance campaigns.

Ask for a complete list of advertising obligations. Distinguish the shared contribution from launch costs, compulsory local advertising and digital services charged separately. A seemingly straightforward monthly fee may sit alongside charges for social media management, materials production or participation in campaigns.

If the contribution is calculated on sales, confirm in writing:

• Whether the calculation includes or excludes VAT.
• How discounts, returns and cancellations are treated.
• Whether sales through third-party platforms are included and how their commissions are treated.
• Whether there is a minimum payment, even if there are no sales.
• Who can change the rate, on what grounds and with how much notice.

Ask for a worked example using a hypothetical monthly invoice, with the assumptions clearly stated. The aim is not to validate sales forecasts, but to remove ambiguity about the amount payable. Also confirm the tax treatment of the charges with a certified accountant in Portugal.

2. Check who makes decisions and who accounts for spending

Request the fund rules, if any, and confirm whether they form part of the contract. Then ask for the advertising budget and any available reports on how it has been spent. A new network may have no track record: in that case, assess the proposed rules and do not accept future plans as evidence of results already achieved.

The key question is what these contributions can be used to pay for. Consumer advertising, photography and maintenance of the corporate website are different types of expenditure from recruiting new franchisees or covering general administrative overheads. Ask for the contract to specify the permitted categories and any limits.

Also clarify:

• Who approves the budget and selects the agencies.
• Whether companies connected to the franchisor can provide services and how those costs are disclosed.
• Whether franchisor-owned outlets also contribute, and on what basis.
• What happens to unspent money or expenditure that exceeds the budget.
• How often you receive reports and whether you can request explanations or an independent review.

Do not assume that the word ‘fund’ gives you an automatic right to an audit. Look for an explicit clause covering financial reporting, access to documents and verification procedures, while respecting commercial confidentiality.

3. Understand how campaigns benefit your outlet

A national campaign does not have to deliver a return to each outlet exactly equal to its contribution. It may strengthen brand awareness and benefit the franchise network indirectly. However, that rationale should be explained before you sign.

Ask for examples of campaigns and find out how their performance is measured. Views and followers are not the same as sales enquiries or purchases. Check whether reports distinguish between brand awareness objectives, enquiries and measurable commercial results, without demanding sales guarantees that advertising cannot provide.

Also examine how national activity fits with local promotion. Can you choose an agency? Do you need prior approval to advertise? What is the response deadline? Is compulsory local spending always additional to the shared contribution?

Promotional offers are another important issue. A campaign paid for by the fund may require discounts funded by your outlet. Confirm who bears that cost and whether participation is compulsory. Pricing and discounts must comply with competition rules; clauses imposing fixed or minimum resale prices require particular legal scrutiny.

4. Make transparency a contractual requirement

Portugal has no franchise-specific legislation, nor does it require a statutory pre-contractual disclosure document with standardised content for franchise arrangements. That does not mean there is no protection.

Relevant legislation includes the Portuguese Civil Code — including freedom of contract under Article 405 and good faith in negotiations and performance under Articles 227 and 762 — and, where applicable, the rules on standard contract terms in Decree-Law No. 446/85. Competition rules must also be observed. The European Code of Ethics for Franchising is a self-regulatory reference, not Portuguese legislation that applies automatically to every network.

Ask a lawyer to review the clauses on charges, changes to contributions and access to information. Promises about reporting, consultation with franchisees or spending limits should be included in the contract or binding appendices. If concerns arise, do not unilaterally suspend payments without legal advice.

In summary: before signing, make sure you can answer three questions: how much do I pay, what can it be spent on, and how can I check its use? If you do not have documented answers, seek clarification and negotiate those terms before proceeding.