Franchising is an increasingly popular avenue for business holders to expand their business. The arrangement is fast and inexpensive which proves to be beneficial for both the franchisee and franchisor. In recent times, there has been a focus on how franchisors have implemented and managed their marketing or cooperative funds.
A recent review into the Franchise Code of Conduct (Code) by Alan Wein has indicated that the Code must be amended in order to give additional controls over marketing and cooperative funds and also give clarity to the way funds are used by the franchisor. The marketing budget should only be used for activities that have been clearly defined and for those expenses that are legitimate marketing costs (Recommendation 8).
Although this is only a recommendation, the Government's response to this is to amend the Code in order to make the administration of the marketing funds more transparent and to ensure that they are used for legitimate marketing expenses.
Franchisors considering the use of their marketing funds in an alternative way should have a comprehensive franchise agreement that specifies particular policies surrounding this budget. The agreement should guide franchisors on how to respond adequately to disputes when managing the marketing fund and provide clear and decisive reasoning for expenditure where relevant. It is recommended that franchisors invest in developing a systematic approach to monitoring the use of their marketing fund throughout the business.
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