Franchising in Portugal: managing the marketing fund

Turning an existing business into a franchise network means distinguishing advertising for the original outlet from promotion that will benefit the network. If you intend to set up a marketing fund, including a contribution in the contract is not enough: you need to explain how the money will be used, who makes the decisions and how you will account for it. This guide focuses on that governance, rather than on calculating fees.

1. Define the purpose before collecting contributions

The marketing fund should have a clearly defined purpose. It might finance shared campaigns, photography, promotional materials or the maintenance of web pages designed to attract customers. It should not serve as a general reserve for the franchisor’s expenses.

Start by dividing planned expenditure into three groups:

• Network-wide promotion: initiatives that promote the brand and demand for the network’s products or services.
• Local promotion: activities aimed at an individual outlet’s catchment area, usually managed by its franchisee.
• Network expansion: campaigns to recruit new franchisees, which should be distinguished from consumer advertising.

Do not present recruitment costs as consumer promotion. If you intend to charge any expansion costs to the fund, this must be expressly provided for and explained before franchisees join, with the arrangement subject to legal review.

Prepare a table of eligible expenditure, excluded costs and items requiring special approval. Also clarify whether the fund covers salaries, in-house services, agency commissions or digital tools. A broad phrase such as ‘marketing expenses’ leaves too many important decisions unexplained.

2. Turn the rules into clear contractual commitments

Portugal has no franchise-specific legislation or separate statutory framework for franchise marketing funds. A franchise agreement is a contract type not specifically regulated by statute and falls within the freedom of contract provided for in Article 405 of the Portuguese Civil Code. Among other provisions, the general rules on good faith in contract negotiations and performance apply, including Articles 227 and 762.

If you use standard contract terms, you should also consider Decree-Law No. 446/85, particularly the duties to communicate terms and provide information, and the rules on prohibited terms. The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law that applies universally.

The contract or an annex should identify:

• The entity that receives and administers contributions.
• The fund’s purpose and permitted expenditure categories.
• The process for approving the budget and significant changes.
• The frequency and content of financial reporting.
• How unused balances and expenditure above budget will be handled.
• The rules applying to company-owned outlets and suppliers connected to the franchisor.

Do not promise a guaranteed return for each franchisee. A shared campaign may benefit outlets unequally, but that does not remove the need for transparent allocation criteria. Also avoid reserving an unlimited right to make unilateral changes: establish limits, grounds for changes and notification procedures, subject to legal review.

3. Organise the finances and decision-making

Before receiving the first contribution, ask a certified accountant in Portugal to establish the accounting and tax treatment of receipts and expenditure. Calling it a ‘fund’ does not, in itself, create a legally separate pool of assets or determine its VAT treatment.

Create a dedicated cost centre and keep records that allow contributions, payments and the balance to be reconciled. A dedicated bank account may make oversight easier, but it should not be presented as a franchise-specific legal requirement or an automatic guarantee that the money is protected.

Set an annual budget by objective and expenditure category. Identify who proposes campaigns, who authorises spending and who checks invoices. Wherever possible, separate payment approval from the checking of supporting documents.

If you engage an agency owned by the franchisor or related parties, disclose that connection. Document the services, prices and reasons for choosing it. Transparency is particularly important when the same entity both decides on expenditure and benefits from it.

You can set up a franchisee advisory group. However, define whether it makes recommendations or has approval powers: consulting the network does not mean giving it a right of veto that the contract does not provide for.

4. Provide useful, verifiable reports

A report should make it possible to understand where the money has gone, rather than simply show campaign images. Include the opening balance, contributions received, expenditure by category, spending commitments and the closing balance. Explain variances from the budget and specify which supporting documents are available for inspection, while protecting personal data and confidential information.

Link expenditure to appropriate metrics: enquiries received, requests for quotations, offer redemptions or visits to outlet web pages. Distinguish observed results from estimates; more views do not, on their own, demonstrate more sales.

Before expanding, carry out a trial run of the fund’s administration using the existing business’s actual expenditure over a set period. Check whether you can produce the report you have promised and justify every cost allocation. This exercise tests the fund’s administration without confusing the original outlet’s historical costs with future franchisees’ obligations.

Practical takeaway: before collecting contributions, put a policy on the use of funds, legally reviewed contractual rules and a reporting template in place. A well-governed fund helps build trust across the franchise network.