Entrepreneurship Test 2 T/F – Flashcards
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Franchising is a form of business organization in which a firm that already has a successful product or service licenses its trademark and method of doing business to other businesses in exchange for an initial franchise fee and an ongoing royalty.
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True
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A business format franchise typically connects a single manufacturer with a network of dealers or distributors.
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False
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The business format franchise is a more popular approach to franchising than the product and trademark franchise.
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True
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In a business format franchise, the franchisor provides a formula for doing business to the franchisee along with training, advertising, and other forms of assistance.
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True
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Business format franchises typically allow franchisees substantial flexibility in how they run their individual franchise units.
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False
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An area franchise agreement allows a franchisee to own and operate a specific number of outlets in a particular geographic area.
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True
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The people who buy franchises from master franchisees are typically called employee-franchisees.
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False
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Despite its advantages, franchising is not a popular form of business growth.
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False
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Target is an example of an organization that is perfectly suited for franchising, but it doesn't franchise.
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False
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An individual who is team oriented is typically a good candidate to be a franchisee.
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True
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The primary disadvantage of franchising is that an organization allows others to profit from its trademark and business method.
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True
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A management concept called agency theory refutes the value of franchising for organizations with multiple units, like restaurant chains.
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False
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In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly net income.
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False
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Franchisees are often required to pay into a national or regional advertising fund, even if the advertisements are directed at goals other than promoting the franchisor's product or service.
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True
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The royalty fees a franchisee pays are usually around 10 percent of gross income.
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False
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One of the most important questions a prospective franchisor should consider is whether the fees and royalties charged by a franchisor are consistent with the franchise's value or worth.
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True
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The Franchise Disclosure Document contains a total of 23 categories of information that give a prospective franchisee a broad base of information about the background and financial health of the franchisor.
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True
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Franchisors are required by law to disclose all their costs in a document called the Franchise Disclosure Document.
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True
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The franchise agreement, or contract, is the document that consummates the sale of a franchise.
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True
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The majority of franchisors are highly ethical individuals who are interested only in making a fair return on their investment.
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True
