ADVICE
Advertising assets
Manzoor Ishani on the creation and application of a central marketing fund
I
t is generally accepted practice in business format franchising that the overall responsibility for advertising, marketing and promoting the brand and concept rests with the franchisor. Much depends on the type of business, but the most common method is for the franchisor to undertake this obligation in return for the franchisees making a payment, on a regular basis, into a central fund. This payment is usually a specifi ed sum or
a percentage of the franchisee’s turnover. An ethical franchisor will ensure that the money received is placed in an account that is kept separate from all its other business accounts and so the money is used only for the purposes of advertising, marketing and promoting the franchisor’s brand and concept, for the benefi t of the network as a whole.
This can include website set-up and maintenance, printing of point-of-sale material, brochures, catalogues, etc, which franchisees either receive without further charge in certain maximum quantities or purchase from the franchisor more or less at cost. The fund should not constitute a pool of money into which a franchisor can dip from time to time to solve
their cashfl ow problems, or indeed for the purpose of recruiting new franchisees! In theory, over a short-term cycle of two
or three years the cost of advertising and marketing should be covered by the monies in the fund. Some years there may be a surplus and in other years there might be a small overspend. In some cases a franchisor will purposely accumulate a surplus in order to fi nance an expensive promotion in the future; to pay, for instance, for a radio commercial. In practice, however, few franchisors fi nd that there is enough money in the fund to cover the things that they feel are needed to promote the brand and the concept. Indeed, in a straw poll (conducted by myself) of 10 franchisors of various sizes and stages of development, only one franchisor said that there was a surplus in the advertising fund at the end of their fi nancial year, and that surplus was very small, indeed far too small to create any accounting or tax problems. The other nine, without exception, have in every year overspent their fund and as a consequence have been subsidising the fund so that whenever the money ran out, the franchisor made good the defi cit out of its own
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