Deck 4: Franchising and the Entrepreneur

Question 1

In franchising,________ pay fees and royalties to a ________ in return for the right to sell its products or services under the franchiser's trade name and often to use its business format and system.

A)franchiser;franchisee
B)franchisee;franchiser
C)franchise;business owner
D)business owner;parent company

Answer 1

B

Question 2

The success of franchising is largely due to:

A)the economic growth of the United States and other developed nations,economies.
B)more college students choosing to go to work for themselves rather than for corporations.
C)the mutual benefits it provides to the franchiser and franchisee.
D)All of these factors

Answer 2

C

Question 3

The primary advantage of buying a franchise over starting your own company is:

A)in the purchase of the franchiser's experience,expertise,and products.
B)the fact it is much less expensive than doing your own business start-up.
C)the extensive assistance offered in finding start-up capital.
D)the absolute territory protection offered by all franchisers.

Answer 3

A

Question 4

The failure rate for franchises is:

A)higher than the rate for all new businesses.
B)no different from the rate for all new businesses.
C)lower than the rate for all new businesses.
D)indeterminable because of the Right to Privacy Act.

Question 5

McDonald's worldwide success as a franchise can be attributed to a few simple strategies,including:

A)complete customization of the menu to fit local tastes.
B)ability to obtain prime locations in high-traffic areas.
C)using U.S.managers and employees whenever possible.
D)standardizing processes and closely managing workers.

Question 6

When it comes to financial assistance for franchisees,the franchiser often:

A)provides direct financing.
B)assists in finding financing and occasionally provides direct assistance in a specific area.
C)waives royalty fees for franchisees not making an adequate profit.
D)generally does nothing,as finding financing is a requirement for qualifying for a franchise.

Question 7

Franchise advertising programs:

A)are organized by the franchiser but controlled locally by the franchisee.
B)are an expense borne by the franchiser.
C)require franchisees to spend a minimum amount on local advertising.
D)allow voluntary participation.

Question 8

There are two main risks in purchasing a franchise.First,that of the franchiser's experience and business system,and second:

A)the brand name recognition of the franchise.
B)the entrepreneur's managerial skills and motivation.
C)the franchiser's financing.
D)the economy trends in the country at the time the franchisee begins operation.

Question 9

________ franchising exists when a franchisee is licensed to sell specific products under the franchiser's brand name through a selective distribution system.

A)Trade name
B)Pure
C)Conversion
D)Product distribution

Question 10

A significant advantage a franchisee has over the independent small business owner is participation in the franchiser's ________.

A)centralized and large-volume buying power
B)social gatherings
C)profits
D)policies

Question 11

Most gasoline products are sold through the ________ system of franchising.

A)product distribution
B)trade name
C)pure
D)conversion

Question 12

Territorial protection in franchising:

A)varies according to industry.
B)is basically every franchisee for him/herself.
C)is absolute and uniform across industries.
D)is no longer an issue for most franchisees.

Question 13

In view of the cause of most new business failures,probably the most valuable service provided franchisees by the franchiser is:

A)management training and experience.
B)national advertising.
C)financial assistance.
D)territorial protection.

Question 14

Pure franchising is also referred to as:

A)trade name franchising.
B)business format franchising.
C)product distribution franchising.
D)all of the above.

Question 15

________ franchising involves providing the franchisee with a complete business system--the established name,the building layout and design,accounting systems,etc.

A)Product distribution
B)Trade name
C)Pure
D)Conversion

Question 16

McDonald's is an example of a ________ franchise.

A)conversion
B)trade name
C)product distribution
D)pure

Question 17

In franchising,the reputation of the franchiser is dependent on:

A)their locations and popularity with the local customer.
B)the brand name recognition and appeal.
C)the rate of growth and the number of national outlets.
D)the quality of the goods and services provided.

Question 18

In ________ franchising,a franchisee purchases only the right to become identified with the franchiser's trade name.

A)trade name
B)pure
C)conversion
D)product distribution

Question 19

Franchising is currently dominated by:

A)auto dealers.
B)service-oriented franchises.
C)retail outlets.
D)fast food restaurants.

Question 20

Most franchise experts consider the most important factor in the success of a franchise to be:

A)the simplicity of the idea.
B)location.
C)territorial protection.
D)financing.

Question 21

Based on the principle of ________,the idea is to put a franchise's products or services directly in the paths of potential customers,wherever that may be.

A)Guerilla marketing
B)Intercept marketing
C)Franchise marketing
D)Path marketing

Question 22

The payment the franchisee makes to the franchiser based on gross sales is:

A)a royalty.
B)the start-up fee.
C)a technical assistance fee.
D)a national advertising fee.

Question 23

The first,second and third growth wave in franchising respectively,are:

A)low-cost franchises that focus on niche markets;shift to service sector;fast-food restaurant using the concept of rapid growth.
B)fast-food restaurant using the concept of rapid growth;shift to service sector;low-cost franchises that focus on niche markets.
C)low-cost franchises that focus on niche markets;fast-food restaurant using the concept of rapid growth;shift to service sector.
D)shift to service sector;low-cost franchises that focus on niche markets;fast-food restaurant using the concept of rapid growth.

Question 24

Which of the following is an indication of a dishonest franchiser?

A)Very thorough and complete operations and training manuals
B)Recommending retail prices and providing a list of "approved" suppliers of products and materials needed for running the franchise
C)Attempts to discourage you from allowing an attorney to evaluate the franchise contract
D)Not providing a set of detailed earnings projections for each potential franchisee

Question 25

When buying a franchise,the potential franchisee should first:

A)search for start-up capital for local banks.
B)evaluate him/herself as to the fit with the franchise.
C)work in a similar business or industry for a year.
D)contact the local chamber of commerce for information on the local economy.

Question 26

The Uniform Franchise Offering Circular is now called the:

A)FTC.
B)FDD
C)UFOC.
D)FOC

Question 27

The most expensive franchises in terms of total investment are:

A)retail franchises.
B)business service franchises.
C)McDonald's franchises.
D)hotel and motel franchises.

Question 28

Which of the following should make a potential franchisee suspicious about a franchiser's honesty?

A)Claims that the franchise contract is a standard one and that there's no need to read it
B)An offer of direct financing of a specific element of the franchise package
C)Not providing detailed operational information until 10 days before signing the contract
D)Requiring franchisees to spend a certain percentage of profits on advertising

Question 29

Typically,the franchiser controls are very tight on what the franchisee:

A)does in terms of who they hire as employees.
B)sets in terms of retail pricing and hours of operation.
C)does with his/her net profits after fees and taxes are paid.
D)sells in terms of the product or service they offer.

Question 30

To protect investors from unscrupulous franchisers,the regulatory body is the:

A)FCC.
B)Justice Department.
C)FDA.
D)FTC.

Question 31

The most litigated subject of the franchisee agreement is:

A)franchisee fees.
B)advertising expenditures.
C)termination of contract.
D)resale price maintenance clauses.

Question 32

Typically,franchise contracts:

A)are short-term,for 10 years or less.
B)are heavily weighted in favor of the franchisee due to federal regulation.
C)do not cover transfer and buyback provisions.
D)are not negotiated by established franchisers.

Question 33

The primary market for U.S.franchisers is:

A)Europe.
B)Pacific Rim.
C)Canada.
D)Asia.

Question 34

Under what circumstances would a typical franchiser have the right to cancel a franchise contract?

A)The franchisee declares bankruptcy.
B)The franchise fails to follow retail pricing guidelines set by the franchiser.
C)Within five days of the initial signing of the contract
D)If the franchiser decides he/she wants to buy back the franchise

Question 35

The FTC's philosophy focuses on:

A)catching and prosecuting abusers of franchise laws.
B)verifying the accuracy of FDD information.
C)providing information to prospective franchisees and helping them make good decisions.
D)licensing prospective franchisers.

Question 36

When it comes to purchasing products,equipment,etc. ,the franchiser:

A)cannot require the franchisees buy from the franchise company.
B)can set prices paid for the products,etc. ,but cannot set the retail price the franchisee charges.
C)is permitted to set the retail price for the franchisee.
D)cannot require franchisees to buy from an "approved" supplier.

Question 37

Despite all the benefits,there are a number of disadvantages to franchises,such as:

A)the time consumed by the management training and support the franchiser provides.
B)the cost of national advertising.
C)strict adherence to standardized operations.
D)territory limitations.

Question 38

Another term for cobranding franchising is:

A)Master Franchising.
B)Conversion Franchising.
C)Multiple-Unit Franchising.
D)Piggybacking.

Question 39

The biggest challenge facing the growth of new franchises is:

A)the lack of capital.
B)competition from independent entrepreneurs.
C)market saturation.
D)the recent downturn in the economy.

Question 40

When evaluating a franchise,the potential franchisee should:

A)interview both current and former franchisees.
B)only interview franchise employees as franchisees vary greatly in their opinions.
C)ask about what oral promises the franchiser will give regarding future earnings.
D)look at the local labor market to see if there is a pool of appropriate candidates for employment.

Question 41

________ franchising involves the owner of an existing business becoming a franchisee to gain the advantage of name recognition.

A)Product distribution
B)Master franchise
C)Conversion
D)Pure

Question 42

A master franchise is also called:

A)sub-franchise.
B)area developer.
C)Both A and B
D)None of the above

Question 43

What franchisee turnover rate is probably sound?

A)Less than 5 percent
B)Less than 15 percent
C)Less than 25 percent
D)Less than 35 percent

Question 44

By definition,a franchise is owned by a semi-independent franchisee who pays a fee to a franchiser in return for the right to sell the franchised goods or services.

Question 45

________ is when owners of independent businesses become franchisees to gain the advantage of name recognition.

A)Conversion franchising
B)Multiple-unit franchising
C)Master franchising
D)Combination franchising

Question 46

When franchise contracts are renewed:

A)the existing contract is merely annotated and signed by both parties.
B)a new UFOC must be issued.
C)all terms of the previous contract may be renegotiated.
D)a new contract must be drawn up by the two parties.

Question 47

The most efficient method of franchising,from the franchiser's point-of-view,which has become popular in the 1990s and permits one franchisee to hold several franchises from the same franchise company,is called:

A)multiple-unit franchising.
B)master franchising.
C)conversion franchising.
D)piggybacking.

Question 48

Trade name franchising involves licensing the rights to sell specific products under the manufacturer's brand name.

Question 49

The ________ requires all franchisers to disclose detailed information on their operations at the first personal meeting or at least fourteen days before a franchise contract is signed or any money is paid.

A)FCC
B)FDD
C)Trade Regulations Rule
D)FDA

Question 50

When the franchisee has the right to establish a semi-independent organization in a particular territory to recruit,sell,and support other franchises,it is called a ________ franchise.

A)multi-unit
B)piggyback
C)conversion
D)master

Question 51

The franchiser has the right to cancel a contract if a franchisee:

A)declares a bankruptcy.
B)fails to make required payments on time.
C)fails to maintain quality standards.
D)All of the above

Question 52

In a franchise arrangement,the franchiser controls the distribution methods of the business venture.

Question 53

The fastest growth rate in franchises is among:

A)traditional areas of franchising,where costs are from $2,500 to $250,000.
B)innovative,nontraditional franchisers with fresh approaches.
C)gas stations and fast foods.
D)hotel/motels and retail outlets.

Question 54

The type of franchising growing fastest is product distribution franchising.

Question 55

Pure franchising occurs when the franchisee purchases only the right to become identified with the franchiser's trade name.

Question 56

Pure franchising involves the right to use all the elements of a fully integrated business operation.

Question 57

Franchising benefits the franchisor by providing a quick way to expand the distribution system and a way to grow without the cost and effort to develop managers internally.

Question 58

Establishing a Mrs.Fields Cookies franchise inside a Hardees fast-food franchise is an example of ________ franchising.

A)multi-unit
B)master
C)piggyback
D)conversion

Question 59

Perhaps the best way to evaluate the reputation of a franchiser is to ________ several franchise owners.

A)meet
B)interview
C)write
D)Both A and B

Question 60

In franchising,royalties are paid by the franchisee to the franchisor.

Question 61

The only fee that franchisers can collect from franchisees is a one-time franchise fee paid at the outset of the relationship.

Question 62

When a franchisee buys a franchise,he/she is purchasing the expertise and the business experience of the franchisor.

Question 63

Buying a franchise prevents an entrepreneur from making many mistakes and avoids the most inefficient type of learning-trial and error.

Question 64

The FTC Trade Regulation Rule applies to all franchisors in all states regardless of state disclosure laws.

Question 65

McDonald's relies almost exclusively on the trade name type of franchising.

Question 66

As with most franchises,the key to McDonald's success is the standardization of their product,processes,etc.

Question 67

It is important for potential entrepreneurs to have extensive experience in the business in which they are buying a franchise.

Question 68

Most franchisers provide extensive financial help like loans and low-rate financing for their franchises.

Question 69

Franchisees generally sell only those products or services that the franchiser has approved but may sell complementary products as long as they aren't a second competing franchise.

Question 70

The basic and first question an entrepreneur should ask him/herself before jumping into a franchise is,"How much is this going to cost me?"

Question 71

In addition to other fees,franchisees must also pay royalties but only on net profits-no profits,no royalties.

Question 72

The failure rate for franchises is well below that for other types of new businesses.

Question 73

Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.

Question 74

In many franchises,strict uniformity is the rule rather than the exception.

Question 75

Franchisors can require franchisees to purchase materials and supplies only from approved suppliers.

Question 76

Territorial encroachment is becoming a hotly contested issue as franchisers have nearly exhausted prime locations for franchises.

Question 77

According to experts,the most important factor in franchising is location.

Question 78

By signing the franchise contract,a franchisee typically surrenders some freedom and autonomy in operating his/her business.

Question 79

Independent entrepreneurs with a "go-my-own-way" attitude are ideally suited for becoming franchisees.

Question 80

Most franchisors do not offer franchisees territorial protection,denying them the right to exclusive distribution of the brand name in a particular geographic area.