Deck 21: Franchising, Licensing, and Harvesting: Cashing in Your Brand

Question 1

To take a business public means to sell its stock on the stock market. The first offering of a business's stock has been acronymed ________.

A) IPO
B) MPO
C) KFYR
D) FIFO
E) LIFO

Answer 1

A

Question 2

A ________ represents the company's promise to consistently deliver a specific set of benefits to customers.

A) Product line extension program
B) Product life cycle
C) Marketing campaign
D) Quality management system
E) Brand

Answer 2

A

Question 3

Ray Kroc and other entrepreneurs decided to focus less on profits and more on delivering consistent ________ to customers. They found that if they could consistently deliver ________, they could build a franchisable business. (Use the same word twice.)

A) Quality
B) Service
C) Consistency
D) Royalties
E) Fees

Answer 3

A

Question 4

If you buy a franchise, you must pay a percentage of every unit you sell to the franchisor. That percentage is called ________.

A) A royalty
B) A franchise fee
C) A commission
D) A charge
E) A payment

Question 5

The harvest or exit strategies set out in a business's plan are important not only to the entrepreneur but also to ________.

A) Investors
B) Customers
C) The IRS
D) The state
E) The church

Question 6

At what stage of starting and running your business should you inform investors of your exit strategy?

A) In the business plan
B) In your first annual report
C) Shortly before selling
D) Midway through your planned number of years in business
E) Never

Question 7

When Ray Kroc franchised McDonalds, what did he do that set the bar for future franchise operations?

A) He provided training and support to franchisees to ensure that quality would be consistent in every McDonalds restaurant.
B) He sold franchises in competing territories to encourage franchise owners to compete and come up with new innovations for the company.
C) He made a lot of money.
D) He set the bar high.
E) He licensed the McDonalds name to a wide variety of products, such as hats and shirts.

Question 8

If you want to buy a business that is growing rapidly, what is the best valuation method to use to determine a fair price for it?

A) Future earnings method
B) Book value method
C) Market-based approach
D) Comparison approach
E) Intuitive method

Question 9

When an entrepreneur sells his or her company to its managers, this exit strategy is called ________.

A) A management buyout
B) A management takeover
C) An acquisition
D) A merger
E) A hostile takeover

Question 10

William Petty's article on harvesting notes that entrepreneurs will have ________.

A) Chances to sell the business, take it public, or merge throughout the life of the business
B) Only one chance to harvest their investment in their firm
C) A chance to sell and a chance to merge, but this typically occurs within the first two years of the life of the business
D) All of the above
E) None of the above

Question 11

Which business is an example of a franchise?

A) Burger King
B) Walmart
C) Sears
D) Federal Express
E) U.S. Postal Service

Question 12

If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would you earn in royalties?

A) $350,000
B) $450,000
C) $550,000
D) $650,000
E) $250,000

Question 13

Why are franchisees typically assigned territories?

A) So that they are not placed in direct competition with other franchises from the same company
B) To avoid conflict with franchises from different companies
C) So they can be assigned to managers
D) All of the above
E) None of the above

Question 14

________, or spreading out the brand among many products and product lines, can increase market share, but it/they can also ________ the company.

A) Diversification, unfocus
B) Diversification, focus
C) Product line extension, focus
D) Alliances, focus
E) Alliances, concentrate

Question 15

In valuing a business, the methods that buyers and sellers can use include ________.

A) Market-based value
B) Book value
C) Future earnings
D) All of the above
E) None of the above

Question 16

Benefits of franchising-for the franchisor-include ________.

A) Lower marketing and promotional costs
B) Growth with minimal capital investment
C) Royalty payments
D) All of the above
E) None of the above

Question 17

Which of the following is a harvest strategy, not an exit strategy?

A) Franchising
B) Merger
C) IPO (initial public offering)
D) Acquisition
E) All of the above

Question 18

One of the advantages of an Employee Stock Ownership Plan is that ________.

A) ESOPs offer tax breaks to the company
B) Employees will likely quit and leave
C) It will prevent employees from having control of the company
D) The owner will have to look for buyers in the general public
E) None of the above

Question 19

________ strategies are ways to obtain money from a business you created by letting others copy it.

A) Replication
B) Harvesting
C) Business
D) Corporate
E) Organizational

Question 20

A brand is a combination of name, logo, and design that ________.

A) Becomes associated in the minds of consumers with the products or services of a company
B) Identifies the owner of a company
C) Expresses the philanthropic intentions of a company to consumers
D) Is cool to look at
E) Is vibrant

Question 21

A license is ________.

A) The right to use a name or image on a product
B) The right to sell knockoffs of a product
C) The right to sell duplicates of a product
D) The right to start a business and run it exactly as the licensor wants it run
E) The same as a franchise

Question 22

Adidas with its athletic shoes have applied their brand to expansion products such as Adidas cologne, getting profitable results.

Question 23

In most industries, twenty or thirty key benchmarks are used to help value a business.

Question 24

Franchising and licensing are called replication strategies because they are ways to obtain money from a business you created by letting others copy or replicate it.

Question 25

Harvesting your business means that you sell it, take it public, or merge with another company.

Question 26

A disadvantage of harvesting cash over time as an exit strategy is ________.

A) It can take a long time to complete
B) The owner doesn't have to look for a buyer
C) The managers find out what the company is really worth
D) You might get less money
E) All of the above

Question 27

Harvesting options include ________.

A) An IPO
B) Increasing cash flows and a management buyout
C) Merging
D) Being acquired
E) All of the above

Question 28

An initial public offering (IPO), or going public, will mean selling shares of your company in the stock market.

Question 29

Most business plans' exit strategies estimate that going public will happen within just four years from the launch date. This is a realistic plan and timeframe.

Question 30

An employee stock ownership plan (ESOP) provides an employee retirement plan and allows the entrepreneur and partners to sell their stock and exit the company.

Question 31

A ________ is a business that markets a product or service in the exact manner prescribed by the person who developed the business.

A) Franchise
B) Licensee
C) Portfolio extension
D) All of the above
E) None of the above

Question 32

Licensors must be careful that a licensee ________.

A) Doesn't damage the licensing company's name
B) Controls every aspect of the licensor's business
C) Doesn't go out of business
D) Follows all procedures of the licensor
E) Franchises the brand to as many others as possible

Question 33

If you buy a McDonalds franchise and agree to pay a royalty fee of 12.5% annually, how much money will you owe McDonalds at the end of a year in which you sell $98,000 of product?

A) $12,250
B) $13,250
C) $11,250
D) $10,250
E) $14,250

Question 34

Once you have established your brand, you can develop new products and use the brand to promote it. This marketing strategy is called ________.

A) Line extension
B) Brand
C) Line quality
D) Line promotion
E) Set expansion

Question 35

Ways to value a business include comparison to other firms, benchmarking, or looking at a multiple of net earnings. Any of the methods is an attempt to arrive at a ________.

A) Fair market value
B) Future value
C) Most profitable price
D) Net present value
E) Gross profit

Question 36

It typically requires at least ________ years to develop a company worth harvesting.

A) Ten
B) Five
C) Two
D) Twenty
E) Eight

Question 37

An acquisition and a merger are the same thing.

Question 38

Merging or being acquired ________.

A) Can be an emotionally draining experience and take over a year
B) Is typically a quick and emotionless process
C) Is typically concluded within a few weeks
D) All of the above
E) None of the above

Question 39

A way to replicate a business formula is through selling.

Question 40

Line extension can work if the brand is strong and the new product is not completely dissimilar to the original.

Question 41

Why is it not a good idea to tell investors in your business plan that your exit strategy is simply "to take the business public"?

Question 42

What is an MBO and what are its advantages?

Question 43

Diversification is the addition of product or service offerings beyond your core product or service.

Question 44

An advantage of the harvesting option Increase the free cash flow is that it can take a long time to execute this exit strategy.

Question 45

The franchisor owns the restaurant and agrees to market the food under the McDonalds name and trademark in the exact fashion developed by Kroc.

Question 46

The multigenerational family-owned-and-operated business best exemplifies the company that provides an opportunity to "grow and go."

Question 47

Book value is one of the most common methods for computing a company's valuation.

Question 48

Explain growth by diversification.

Question 49

What are the drawbacks of a franchising agreement to the franchisor?

Question 50

Describe three simple methods that can be used to estimate a selling price for a business: