Franchise marketing funds

About marketing funds

Unless it says so in the franchise agreement, franchisees usually don’t get a say on how marketing money is spent. This is a decision for the franchisor. Although a franchisee may pay fees to a marketing fund, this does not mean that the franchisee’s individual business must be promoted or advertised using money from the fund.

Franchisors who operate a marketing fund, or their fund administrators, must follow rules in the Franchising Code of Conduct about:

• who pays into the fund
• how the money can be used
• telling franchisees about how the money was collected and spent every financial year.

Information given to franchisees must not be misleading or deceptive. Penalties may apply to franchisors who don't follow these laws.

Details to include in the disclosure document

If a franchisee must pay money to a marketing fund, the franchisor's disclosure document must include details about:

• who controls or administers the fund
• who else contributes to the fund
• the kind of expenses that the fund can be used for
• how much the franchisee must contribute to the fund and whether some franchisees contribute more or less
• if the franchisor or master franchisor must spend part of the fund on marketing or promoting the franchisee's business.

The disclosure document will also include further information about:

• how the fund was spent the previous year, including the percentage spent on production, marketing, administration and other stated expenses
• if the fund is audited and, if so, by whom and when
• if the franchisor, master franchisor or an associate supplies the goods or services that the fund pays for.

How marketing funds can be used

A marketing fund can only be used to pay for:

• costs that the franchisor has told franchisees about in the disclosure document
• legitimate marketing expenses
• expenses that a majority of franchisees contributing to the fund have agreed to pay
• the reasonable costs of administering or auditing the marketing fund.

If a franchisee has concerns about how marketing funds are spent, they should speak to their franchisor first. The franchisor must give a marketing fund statement to franchisees each year. This statement should tell franchisees about how funds are being used.

Who pays into the fund

The disclosure document must say who contributes to the fund. If the franchisor or master franchisor operates a franchised business, they must also contribute to the marketing fund like their franchisees.

Often the marketing fee will be based on turnover. So even if a franchisee is not making a profit, they may still have to pay into the fund.

Marketing fund statements

If franchisees pay into a marketing or other cooperative fund, the fund administrator must prepare an annual marketing fund financial statement. This statement must be given to franchisees.

The 'fund administrator' could be the franchisor, master franchisor or a person they authorise to administer the fund. The disclosure document lists who the fund administrator is.

Statements must be audited

Marketing fund financial statements must be independently audited. Franchisors must give a copy of the audit report to franchisees.

The only time a statement doesn't have to be independently audited is if 75% of the franchisees in Australia who contribute to the fund vote that an audit isn't necessary. This vote should happen each year within 3 months after the end of the financial year, before the marketing fund financial statement is due.

The franchisor can pay for the cost of the audit using the marketing fund.

The statement must provide meaningful information

The marketing fund statement must:

• make sense to an ordinary reader, and not just an accounting professional
• include enough detail to give franchisees meaningful information about the fund’s income and expenses.

Meaningful information allows franchisees to see, just by looking at the statement, how, when, and on what the money from the fund was spent. This helps franchisees to understand whether the fund is being used appropriately.

For example, ‘50% spend’ under a line item of ‘Advertising – Television’ in a statement is unlikely to give enough detail. More information is needed, such as which television channels the advertising appeared on and when.

Different items or types of expenditure may need different levels of detail. Generally, larger expenses will be more important to franchisees and need more detail.