Under what condition can Chatime receive reimbursement for excess expenditure from the advertising fund in later years?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
We will administer the fund. The financial statements of the fund will not be audited and will be made available to you for your review, at your written request, within six months after the end of our fiscal year. Other than reimbursement for reasonable costs and overhead incurred in activities for the administration or direction of the fund, neither we nor any affiliate will receive any payment for providing services or products to the fund. If we spend more than the contributions accumulated in the fund during any fiscal year, we may receive, on demand, reimbursement in later years to the extent of the excess expenditure. We will not be required to spend any amount from the fund on advertising or promotions in your area. Any local, regional or national advertising efforts may not equitably reach all markets. If any contributions to the fund, including any associated earnings, are not spent in the fiscal year in which they accrue, they will remain in the fund for use in following years. We may terminate the fund at any time, but we will not do so until all monies in the fund have been spent for the purposes described in the franchise agreement or returned to contributors on a prorated basis. (Clause 7.3 of the Franchise Agreement). As of December 31, 2024, we had not yet collected or received any advertising funds from any franchisees.
Source: Item 11 — Franchisor's Assistance, Advertising, Computer Systems, and Training (FDD pages 27–35)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, Chatime may receive reimbursement for excess expenditures from the Brand Marketing Fund in later years if they spend more than the contributions accumulated in the fund during any fiscal year. In this case, Chatime can demand reimbursement in subsequent years to cover the amount of the excess expenditure.
This means that if the advertising fund runs a deficit in a given year due to Chatime's marketing efforts, they are entitled to recoup those costs from future contributions to the fund. This mechanism ensures that Chatime is not financially penalized for investing heavily in advertising and promotion, even if the immediate contributions to the fund are insufficient to cover those expenses.
It's important for prospective franchisees to understand that while Chatime can seek reimbursement for excess spending, there is no guarantee that a specific amount will be spent on advertising in their particular territory or region. The FDD states that Chatime is not required to spend any amount from the fund on advertising or promotions in a franchisee's area, and advertising efforts may not equitably reach all markets. Franchisees should consider this when evaluating the potential benefits of the Brand Marketing Fund and factor in the requirement to spend at least 2.0% of Gross Sales on local marketing.