Are you spending enough on advertising?

As the year-end approaches, McDonald’s owner/operators need to be sure they have spent enough throughout the year on advertising efforts.

With the launch of BBV2020 in 2018, the spending requirement for owner/operators was reduced from 4 percent of annual sales to 3.2 percent of sales. Between the national advertising spending through OPNAD of 2 percent and the local efforts through co-ops, meeting this 3.2 percent threshold as laid out in the franchise agreement with McDonald’s typically is not a problem for most owner/operators.

Where issues can arise, however, is in the event the owner/operator’s co-op does not spend all of its budgeted advertising dollars and they receive a large refund after the close of the year.  The owner/operator could then be in a position where he or she did not meet the 3.2 percent of sales threshold after all.

Consider a hypothetical case of an owner/operator who allocates 0.2 percent of her sales to advertising throughout the year with the understanding that OPNAD will contribute 2 percent and her co-op has budgeted 1 percent. By year-end, however, the local co-op did not spend all its advertising dollars and saw a refund. The calculation for the owner/operator is thus shifted and the 0.2 percent spent by the owner/operator throughout the year is not enough to reach the 3.2 percent of sales threshold required by McDonald’s.

There are some things owner/operators can do throughout the year to keep tabs on their advertising spending so they don’t find themselves behind the proverbial eight-ball at the end of the year.

First, we recommend staying involved with your co-ops. The co-ops meet regularly, and it is usually around late autumn they are setting their budgets and determining their contribution rates for the coming year.

We also recommend that you consider supplementing your advertising allotment with additional local promotions and advertising if your co-op’s contribution percentage is less than 1.2.

Second, it is imperative that owner/operators keep close tabs on their profit and loss statements throughout the year. There are line items for Advertising (OPNAD and co-op contributions), Advertising-Other, and Promotions on the P&Ls. Those line items should add up to a minimum of 3.2 percent of sales.

For those clients using Sage Intacct, we can set up a performance card on your Sage Intacct dashboard so you can see at a glance what you are spending each month.

Please let us know if you have any questions or if we can assist.

Judy Hatch is an Accounting Manager with Antares Group, Inc. She can be reached at jlh@antarescpas.com.