Advertising fund

The Canadian Franchise Association lists handling brand advertising among a franchisor’s responsibilities. Where the franchise agreement requires franchisees to pay into a fund for that purpose, the contribution is one of the franchisee’s costs, so ask whether it is charged separately from the royalty. Anyone buying a franchise or a resale should know how the fund is accounted for. What ongoing fees and royalties does a franchisee pay? sets it beside the other ongoing costs.

What Ontario requires disclosed

Paragraph 6 of section 6 of O. Reg. 581/00 under the Arthur Wishart Act applies where a franchisee, as a condition of the franchise agreement, is required to contribute to an advertising fund. The disclosure document must describe the percentage spent on national campaigns and local advertising in the two fiscal years immediately preceding the date of the disclosure document, and the percentage retained by the franchisor, its parent or its associate. It must also give the projected contribution and projections for the current fiscal year, and indicate whether reports on advertising activities financed by the fund will be made available to the franchisee. That is Ontario’s rule; in another province, check that province’s own Act and regulations.

What to ask

• Ask for the fund’s most recent accounting and any reports on its activities
• Confirm how much of the fund the franchisor keeps
• Check whether a resale buyer receives a disclosure document or must ask for these figures directly