Franchises ; Buyouts – Flashcards
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T/F You will lose some of your financial independence when you franchise because the contract will control how you run the business
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True
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The _________, who lends the trademark or trade name and a business system
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Franchisor
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The ________, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system
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Franchisee
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________ is the contract binding the two parties
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Franchise
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T/F One of the advantages of buying a franchise is that the purchaser has access to a proven business system.
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True
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T/F A franchise is typically attractive because it offers training, financial assistance, and operating benefits.
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True
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T/F A disadvantage of purchasing a franchise is that franchisors seldom provide adequate training programs.
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False-- Results show that most franchisors provide training
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Which characteristic is not considered a positive of franchising?
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a. higher success rates than for alternative methods. b. entrepreneurial independence. c. financial and training assistance. d. operating benefits. B
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A disadvantage of franchising is:
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a. reduced risk of failure. b. access to a proven system. c. restricted sales territories. d. immediate economies of scale. C
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An entrepreneur would choose a franchise over an independent startup most likely because of the:
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a. freedom in decision making. b. guidance provided for organizational structure. c. probability of success.. opportunities to meet and share ideas with other executives. C
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The cost of a franchise may include
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a. royalty payments. b. higher operational costs. c. a one-time federal franchise tax. d. higher labor costs. A
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Investment costs related to franchising include all of the following except:
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a. insurance premiums and legal fees. b. inventory and supply costs. c. building and equipment costs. d. royalty payments. D
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Having worked professionally for 10 years, Tom and Kate have decided to start a new franchise. Considering their background, a disadvantage for them becoming franchisees is
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a. the restrictions on business operations. b. unlimited company growth. c. the expectation to work more than a 40 hour work week. d. an increase in entrepreneurial independence. A
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An entity or individual granted the right to conduct business according to specified methods and terms of another party is known as a
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a. franchisor. b. franchisee c. franchise. d. licensee. B
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The franchising strategy whereby an individual or firm is granted the legal right to own more than one unit of a franchised business is known as
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a. development franchising. b. multiple-unit ownership. c. piggyback franchising. d. aggregate ownership. B
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Individuals or firms that possess the legal right to open multiple outlets in a given area are referred to as:
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a. development franchisees. b. area developers. c. piggyback franchisees. d. multiple-unit owners. B
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A Starbucks franchise located inside a Target store is called ______ franchising.
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a. folded b. internalized c. cooperative d. piggyback D
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Which source of information is not recommended to help a potential franchisee investigate a franchising opportunity?
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a. The franchisors themselves b. The franchisor suppliers c. Existing and previous franchisees d. Independent, third-party sources B
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What information is typically not found in a disclosure document?
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a. The franchisor's involvement in litigation b. Key features of the franchisor's experience c. Details of the franchisor's proprietary technology d. The franchisor's size C
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Franchise costs include all of the following expenses except
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a. advertising costs. b. investment costs. c. royalty payments. d. churning costs. D
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All of the following restrictions are considered management disadvantages of franchising except
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a. requiring adherence to the operations manual. b. requiring site approval and outlet appearance. c. restricting goods and services offered for sale. d. restricting advertising and hours of operation. A
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What question is the least important when developing a franchise from an independent business?
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a. Who will develop the operations manual? b. Is the business replicable? c. How will growth be financed? d. What expert assistance will be needed for legal matters? A
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Benefits of becoming a franchisee include all of the following items except
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a. reduced risk of failure. b. detailed operating manual. c. management training. d. reduction in control. D
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The disclosure statement provided to a prospective franchisee must contain all of the following information except
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a. franchisor's finances. b. experience in the market. c. involvement in litigation. d. strategic plans for future expansion. D
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Which of the following reasons for buying a business is also a reason for purchasing a franchise?
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a. Reduction of uncertainty b. Acquiring goodwill c. Bargain price d. Quick start A
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The Franchise Registry maintained by the U.S. Small Business Administration
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a. lists warnings about certain franchise systems. b. verifies a franchise system's lending eligibility. c. rates franchise systems according to a four star rating. d. registers all franchise systems operating in the U.S. B
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A document called the _____ is the accepted format for satisfying franchise disclosure requirements
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Franchise Disclosure Document
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Most franchise experts recommend that the FDD be examined carefully by:
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a. regulators that specialize in such documents. b. a franchise attorney and an accountant. c. everyone associated with the potential startup. d. suppliers that may be used if the startup is successful. B
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Which consideration need to be well thought out before deciding to franchise a business?
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1. Is the business model replicable? 2. What will be included in the operations manual? 3. How will the growth be financed?
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_________ is a specialized broker who handles all arrangements for closing a buyout.
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A matchmaker
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Which practice is a competitive concern for franchisees?
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Enroachment
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List and describe the cost components of becoming a franchisee.
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1. Initial franchise fee: may range from several hundred to several thousand dollars. 2. Investment costs: renting or building an outlet, stocking it with inventory and equipment, insurance premiums, legal fees and other startup expenses. 3. Royalty payments: charged to the franchisee by the franchisor, calculated as a percentage of the gross income. 4. Advertising costs: many franchisees contribute to an advertising fund to promote the franchise, generally 1 to 2 percent of sales
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T/F There is no need to find out more information about a prospective franchise as the franchisor should be the primary source of information.
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False-- This information will be a primary source but more information should be obtained. The information from the franchisor is being used to promote the franchise.
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T/F A franchise organization that is registered with the U.S. Small Business Administration will greatly speed up loan processing for a franchisee
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True
