FRANCHISE MARKETING FUNDS

The Franchising Code of Conduct regulates the conduct of participants within the franchising industry in Australia. One element of that regulation relates to “Marketing Funds”. 

Marketing Funds allow for the accumulation of monetary contributions from franchisees into a specific bank account set up by the Franchisor. These funds then assist to pay for broad-scale advertising and promotional activities on behalf of the franchise network. 

A Marketing Fund is not compulsory under the Franchising Code of Conduct, but where one is set up - the Franchisor must comply with certain criteria. 

The Franchise Agreement typically sets out the terms and conditions related to the Marketing Fund, including the amount of contributions and when they are to be paid. 

Under the Franchising Code of Conduct:

  • A Franchisor must maintain a separate bank account for marketing fees and advertising fees contributed by franchisees; 

  • If the Franchisor operates corporate outlets, the Franchisor must pay marketing fees and advertising fees on behalf of each corporate outlet on the same basis as other franchisees; 

  • The funds in the Marketing Fund must be used for legitimate marketing or advertising expenses; 

  • The Franchisor is required to prepare an annual financial statement detailing all of the Marketing Fund’s receipts and expenses for the previous financial year; 

  • This financial statement must be prepared within 4 months after the end of the last financial year; and 

  • The financial statement must be given to each Franchisee within 30 days of the statement being prepared.

In addition, the financial statement must be audited by a registered company auditor within 4 months after the end of the financial year to which it relates. In terms of the auditing requirement, the Code does allow the Franchisor the ability to avoid this auditing obligation if:

  • 75% of Franchisees in Australia, who contribute to the Marketing Fund, have voted to agree that the Franchisor does not have to comply; and

  • these 75% of Franchisees agree to this within 3 months after the end of the financial year.

It is important that Franchisors ensure they comply with their obligations in relation to Marketing Funds or risk breaching the Code.