ADVICE
resources. In two cases, franchisors admitted that they hoped to recover the overspend from future contributions but this had yet to happen. They believed that as the network grew, so the fund would also grow, but in their experience so does the advertising spend, with a result that there is never really any catching up!
“An ethical franchisor ensures money is placed in an account separate from all other business and used only for the purposes of marketing”
Not all franchisors follow this route, though. Some franchisors leave the question of advertising entirely to their franchisees, either giving them a free hand in terms of expenditure or alternatively agreeing with them on a marketing plan, with a legal obligation on the part of the franchisee to follow it. Some franchisors have a system of sharing
the burden, so that the franchisor is obligated to undertake certain basic advertising (again to be paid by franchisees making contributions to a fund) but there is also an obligation on franchisees to expend certain amounts on local
advertising to promote their own businesses. There is no hard and fast rule and each franchisor must examine its business closely to determine the degree to which the success of franchisees is dependent upon advertising and to try to fi nd a structure that suits both parties. There is no doubt that conducting advertising, marketing and promotions centrally can bring enormous benefi ts in terms of economies of scale and franchisees certainly get a bigger bang for their bucks than if they were to go it alone. I know of at least one franchisor that has gone back to their franchisees and agreed with them an entirely different structure. In other cases, franchisors have asked franchisees to make one-off payments to pay for one-off promotions or campaigns. Where there is a consistent overspend, the franchisor needs to decide whether the return on advertising justifi es the subsidy to their franchisees, whether it should cut back on its advertising to an acceptable level or meet with franchisees, explain their dilemma and reach some sort of accommodation with them. The lesson to be learned by those in the
process of structuring a franchise is to spend a little more time than they would otherwise be inclined on this aspect of the business to ensure they get their fi gures right at the outset. In the current climate, businesses should be increasing their advertising and marketing spend rather than reducing it. n
MANZOOR ISHANI
Manzoor Ishani is a senior solicitor consultant with Sherrards (Solicitors), a commercial practice advising franchisors and franchisees in the UK and internationally. He has specialised in franchising for more than 30 years and is a former member of the legal committee of the British Franchise Association and is co-author of ‘Franchising in the UK’, ‘Franchising in Europe’ and ‘Franchising in Canada’.
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