Deck 11: Buying a Franchise

Question 1

The application form normally requires you to provide a deposit, typically in the range of:

A) $100-$250
B) $500-$1,000
C) $2,000-$5,000
D) $5,000-$10,000

Answer 1

C

Question 2

All of the following are advantages of franchising your business, except:

A) Since franchisees use their own capital you have no investment at the unit level so you can leverage the assets of these franchisees.
B) Because you have a smaller investment in the overall business, your ROI should be significantly higher.
C) Establishing franchises can enable you to grow much faster without increasing your investment or adding more employees.
D) Franchisees are less motivated since they think everything will be controlled by the owner.

Answer 2

D

Question 3

Which format involves a franchisor's granting you the right to establish more than one outlet within a specified territory?

A) Single-unit franchise
B) Area franchise
C) Master franchise
D) Corporate franchise

Answer 3

B

Question 4

Royalties are usually:

A) Calculated as a percentage of the gross sales
B) Calculated as a percentage profits
C) A fixed monthly expense
D) Set up depending on what the individual can afford to pay

Question 5

Franchising is based on mutual trust and a legal relationship between the two parties.

Question 6

In which format does a franchisor grant you the right not only to operate an outlet in a specific territory but also to sell sub-franchises to others within that same territory?

A) Single-unit franchise
B) Area franchise
C) Master franchise
D) Corporate franchise

Question 7

The application form will likely request all of the following information, except:

A) The value of your net assets
B) Your name and mailing address
C) Your religion
D) The names of any fraternal or civic organization to which you might belong

Question 8

Virtually all franchise arrangements contain all of the following elements, except:

A) A continuing relationship between two parties
B) A legal contract that describes the responsibilities and obligations of each party
C) A succession plan
D) Tangible and intangible assets (such as services, trademarks, and expertise) provided by the franchisor for a fee

Question 9

Which type of franchising may be a means of achieving certain economies of scale and perhaps a lower average franchise cost?

A) Single-unit franchise
B) Area franchise
C) Master franchise
D) Corporate franchise

Question 10

After you have identified one or two possibility choices for a franchise opportunity, the next step is to:

A) Meet with the corporate headquarters
B) Request a promotional kit from each of the franchisors
C) Go to the bank to secure financing
D) Make an appointment with a lawyer

Question 11

All of the following are trends in the future of franchising, except:

A) Pet care
B) Home improvements
C) Fitness
D) Horticulture

Question 12

Which type of franchising is the fastest way for a franchisor to expand?

A) Single-unit franchise
B) Area franchise
C) Master franchise
D) Corporate franchise

Question 13

Which of the following is an example of an entire business format franchising arrangement?

A) Tim Hortons
B) General Motors
C) Ford Motor Company
D) Coke

Question 14

Which type of franchise is the most popular and simplest format?

A) Single-unit franchise
B) Area franchise
C) Master franchise
D) Corporate franchise

Question 15

All of the following are examples of a product distribution arrangement, except:

A) Coke
B) Pepsi
C) BMW
D) McDonalds

Question 16

Which of the following is not an advantage to buying a franchise?

A) A proven system
B) Reduced risk
C) Loss of independence
D) Purchasing power

Question 17

Franchising is a legal and commercial relationship between the owner of a trademark, trade name, or advertising symbol and an individual or group of people seeking the right to use that identification in a business.

Question 18

Which of the following personal characteristic is generally of the most importance to franchisors?

A) Credit and financial standing
B) Previous work experience
C) Personality
D) Educational background

Question 19

All of the following are considered disadvantages of buying a franchise, except:

A) Loss of independence
B) Misrepresentation by the franchisor
C) Misunderstanding the franchise agreement
D) Easier access to financing and reduced cash requirements

Question 20

For a fast-food franchise, typical royalties range from:

A) 1-2 percent
B) 3-8 percent
C) 8-12 percent
D) 12-15 percent

Question 21

Most franchisees generally want to have the franchisor agree not to operate or grant a franchise to operate another franchised outlet too close to their operation.

Question 22

In addition to the initial fee you must pay to buy a franchise, are there any other ongoing fees?

Question 23

Subway, the successful submarine sandwich franchise, offers its new franchisees financing via an in-house equipment leasing program.

Question 24

Franchisors are not required by law in Ontario to provide prospective franchisees with a disclosure document.

Question 25

Only Alberta, Manitoba, Ontario, Prince Edward Island, and New Brunswick have legislation specifically related to franchise disclosure.

Question 26

Franchised operations cannot be leased under the Canadian Franchise Regulations Act.

Question 27

List some sources of preliminary information regarding available franchises.

Question 28

Describe the ways in which a lease arrangement may be set up.

Question 29

If your application form for a franchise is approved, the franchisor will interview you to determine your suitability as a franchisee.

Question 30

What are some of the obligations imposed on the franchisee?

Question 31

A key element in the success of many franchise organizations is the sameness of each of the franchise outlets. Explain.

Question 32

List five of the obligations undertaken by the franchisor.

Question 33

Describe three future trends in franchising.

Question 34

What are the common elements included in virtually all franchise arrangements?

Question 35

Franchisees have minimal obligations and are never subject to inspection or supervision.

Question 36

The investment required for a service franchise is usually much higher than other standard types of franchise opportunities.