Compliance
A franchise system will often require franchisees to pay money into a specific purpose fund operated by the franchisor. A specific purpose fund is money set aside for a specific common purpose related to running the franchised business, for example, a marketing fund. There are rules about how money paid into a specific purpose fund can be kept and used.
It’s important to look at the annual financial statement of specific purpose funds. From 1 November 2025, the most recently prepared annual financial statement must be provided with the disclosure document to prospective franchisees.
It is not enough to be shown that the accounting practices are sound. You are entitled to know how the fund has been applied for the common purpose and understand whether it is to your benefit and has added value to your business.
Transparency in specific purpose funds
To effectively manage specific purpose funds, the franchisor should understand planning, forecasting, communication, budgeting and brand strategy. Franchisors could consider providing training to franchisees so they can participate as informed individuals.
Best practice goes beyond the compliance of proper accounting. Franchisors should be transparent about the use of specific purpose funds and engage genuinely with franchisees through meetings, consultations and sharing of information, in a way that protects the confidentiality of any commercially sensitive information. It should be clear whether only franchisees contribute to funds, or if there are other sources, such as commissions from supplier agreements. It should also be clear how the funds are benefitting franchisees or if they are being applied to pay for some head office expense.
Disputes can arise about the operation of marketing funds that relate to non-compliance with legal requirements, or disagreement about the merits of some expenditure.
A transparent process for determining spending may assist to minimise disputes. Franchisors could also consider a consultative process, such as a committee that includes representative franchisees. An annual plan on intended use of the funds could be provided with an invitation for feedback.
Case study example: Establishing a franchisee committee for specific-purpose funds:
Sometimes franchisors engage with franchisees through independent franchisee associations or franchisor-established franchise advisory committees or councils. For example, a committee of elected franchisees may review and make recommendations on national marketing campaigns and the use of specific-purpose funds. Franchisees then vote to approve the committee’s recommendations. This voting system helps democratise decision-making and encourages participation from both small and large franchisees. Other franchisors use similar systems to create open communication and transparency, helping to build mutual trust between franchisors and their franchisees.