Buying a franchise: assessing the advertising fund

Joint advertising can be one of the benefits of belonging to a franchise network. However, paying a contribution does not guarantee campaigns in your area, sales leads or sales. Before buying a franchise in Portugal, assess the advertising fund as a separate commitment: you need to understand who manages it, what it finances and how you can monitor the use of the money.

1. Identify what you are actually funding

Start by distinguishing between three cost categories: contributions to shared advertising, launch publicity costs and mandatory spending on local advertising. All three may apply, and they should not be confused with royalties.

Ask for a written description of eligible expenses. The fund may be intended to cover national campaigns, photography, social media management, advertising space or the upkeep of websites and other digital pages. Do not assume that all these activities are included.

Also clarify whether the fund can cover:

• Salaries or fees for the communications team;
• Agency commissions and fees paid to other intermediaries;
• Shared digital tools;
• Campaigns benefiting outlets owned by the franchisor;
• Advertising aimed at recruiting new franchisees.

This last use deserves particular attention: promoting opportunities to join the brand is not the same as attracting customers to existing outlets. If both are permitted, ask for clear allocation criteria and limits.

The essential question is simple: which expenses fall outside the fund and could be charged separately?

2. Understand who makes decisions and how they account for spending

The term ‘advertising fund’ does not, in itself, mean there is a separate bank account, legally ring-fenced assets or franchisee involvement in decisions. Confirm the actual arrangements and who receives the contributions.

Request the available communications budget and a sample spending report, anonymised if necessary. Look for information on amounts received, expenditure by category, commitments made and the balance carried forward to the next period.

Ask who approves campaigns and selects suppliers. If businesses connected to the franchisor are engaged, ask for an explanation of how those costs are determined and disclosed.

Also check:

• Whether franchisees are consulted and whether their role is purely advisory;
• How often reports are provided;
• Which documents can be inspected to clarify expenses;
• How unspent funds and any deficits are handled;
• Whether franchisor-owned outlets contribute, and on what basis.

Do not confuse a report on campaign reach with a financial account of spending. Both can be useful, but they answer different questions. If the promised transparency matters to your decision, ask for it to be written into the contract.

3. Assess local benefits and additional costs

A national campaign may strengthen brand awareness without spreading investment equally across every location. This does not necessarily indicate poor management, but it does call for clear criteria before you join.

Ask how target regions are selected, how sales leads are allocated and whether your outlet will feature on the brand’s digital channels. For campaigns involving online bookings or purchases, clarify how orders and bookings are assigned and who bears the associated costs.

Ask for examples of activity suited to locations comparable to yours, without treating them as promises of results. The aim is to understand whether the strategy suits the type of market in which you intend to operate.

Then draw up a schedule of costs: shared contributions, minimum local advertising spend, mandatory materials, agency services and exceptional campaigns. Confirm whether approved local expenditure can count towards any contractual obligation or whether it will always be additional.

Finally, clarify the approval process for local initiatives: your point of contact, the information required, response times and your freedom to choose suppliers. A requirement to promote the business locally should be supported by a workable approval procedure.

4. Make sure the answers are reflected in the contract

Portugal has no specific law governing franchise agreements, nor a legally prescribed pre-contractual disclosure document or minimum disclosure period specific to franchising. There is also no dedicated register of franchisors that certifies these opportunities.

The general rules of the Portuguese Civil Code apply, including good faith in negotiations under Article 227 and in the performance of obligations under Article 762(2). Where standard contract terms are used, Decree-Law No. 446/85 of 25 October, as amended, is relevant, particularly its duties concerning the communication of terms and the provision of information.

This legal framework is no substitute for clear contractual rules on the fund. Have a lawyer review its permitted uses, reporting and accountability arrangements, and the conditions for introducing exceptional charges. Also clarify what happens to any remaining balance when the relationship ends: do not assume an automatic right to a refund.

Practical conclusion: before signing, summarise on one page what you pay, what the fund can finance, who makes decisions and what information you will receive. If any answer rests solely on a verbal promise, ask for it to be put in writing.