Whether you’re a seasoned franchisor or just starting your franchise journey, marketing funds can be a tricky area to ensure you are keeping within the bounds of the Franchising Code of Conduct (‘Code’). Marketing funds can act as a crucial source of revenue to fund effective marketing activities; however, the strict obligations imposed on franchisors under the Code create additional disclosure obligations and administrative responsibilities. This article will discuss the practical considerations of administration and management of a marketing fund.
Key requirements for operating a Marketing Fund under the Code
To avoid coming under scrutiny from franchisees or the ACCC, it is prudent franchisors ensure compliance with the following:
1. Keep It Separate:
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- The Code mandates that marketing funds must be kept in a separate bank account. This ensures clarity and transparency, making it easier to track where every dollar goes.
2. Annual Financial Statements:
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- Franchisors are required to prepare an annual financial statement within 4 months after the end of each financial year, that details all the marketing fund’s receipts and expenditures. Franchisors must ensure they provide sufficient detail so as to give meaningful information to a franchisee about sources of income and items of expenditure.
3. Audit It or Agree Not To:
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- Typically, the marketing fund’s financial statement needs to be audited annually. However, if 75% of contributing franchisees agree in writing prior to the due date for the provision of audited statements, this requirement can be waived.
4. Full Disclosure:
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- The Franchise Disclosure Document (FDD) must include comprehensive details about the marketing fund. This includes how much franchisees are expected to contribute, what those funds will be used for, and the methods used to calculate contributions.
5. Spend Wisely:
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- The funds should be used solely for the permitted categories under the FDD. These categories are however very broad and cover expenditure for digital marketing, brand development, and a range of other promotional activities. You may also wish to consider implementing a process for which franchisees can provide input into the marketing fund spend.
With the 2023/2024 financial year coming to an end, it is time for many franchisors to turn their minds to their annual marketing fund update. For comprehensive legal advice on your marketing fund statement or general guidance, feel free to reach out to us at hello@hitchadvisory.com.