Deck 14: Franchising, Licensing, and Harvesting: Cashing in Your Brand

Question 1

Licensing is ________.

A) the right to sell knockoffs of a product
B) the right to start a business and run it exactly as the licensor wants it run
C) the right to operate a business
D) renting your brand or other intellectual property to increase sales

Answer 1

D

Question 2

Licensors must be careful that a licensee ________.

A) franchises the brand to as many others as possible
B) doesn't damage the licensing company's name
C) controls every aspect of the licensor's business
D) doesn't fail to pay royalties

Answer 2

B

Question 3

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

A) $12,000
B) $12,100
C) $12,200
D) $12,250

Answer 3

D

Question 4

Explain replication strategies and harvesting and how they differ.

Question 5

What did Ray Kroc do when he franchised McDonald's 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 McDonald's restaurant.
B) He licensed the McDonald's name to a wide variety of products such as hats and shirts.
C) He sold franchises in competing territories to encourage franchise owners to compete and come up with new innovations for the company.
D) He improved the quality of hamburgers and customer service.

Question 6

A ________ is a business that markets a product or service in the manner prescribed by the parent business.

A) license
B) franchise
C) replica
D) branch

Question 7

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

A) product life cycle
B) product line extension program
C) brand
D) customer service policy

Question 8

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

A) twenty
B) fifteen
C) twelve
D) ten

Question 9

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

A) merger
B) IPO (initial public offering)
C) acquisition
D) franchising

Question 10

One way to grow your business is to use diversification, which is the addition of offerings beyond your core product or service.

Question 11

A ________ identifies the products or services of a company and differentiates them from those of competitors.

A) copyright
B) product line
C) mission
D) brand

Question 12

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.

Question 13

What is franchising and how is it different from licensing?

Question 14

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

A) Product line extension/unfocus
B) Alliances/focus
C) Diversification/focus
D) Diversification/unfocus

Question 15

Which business is an example of a franchise?

A) Sears
B) Burger King
C) Federal Express
D) The U.S. Postal Services

Question 16

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) branding
C) line promotion
D) brand extension

Question 17

The benefits of franchising include growth with medium capital investment, lower marketing but higher promotional costs, and royalties.

Question 18

________ is the addition of offerings beyond the company's core product or service.

A) Franchising
B) Diversification
C) Licensing
D) Complementing

Question 19

Which of the following is not a benefit of franchising to the franchisor?

A) growth with minimal capital investment
B) higher marketing and promotional costs
C) royalties
D) the minimal number of regulations regarding franchising

Question 20

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) $3,500,000
B) $3,000,000
C) $300,000
D) $350,000

Question 21

Three of the most common harvesting options include increasing the free cash flow, management buyout, and management stock ownership plan.

Question 22

One of the methods for computing a company's valuation is called the market-based technique. This means to look at a company as assets minus liabilities.

Question 23

When one is merging or being acquired, ________.

A) it is typically a quick and emotionless process
B) it is typically concluded within a few weeks
C) it can be an emotionally draining experience and take over a year
D) None of the above.

Question 24

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 25

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

A) the managers find out what the company is really worth
B) the owner doesn't have to look for a buyer
C) the owner will lose money
D) it can take a long time to complete

Question 26

One way to value a business is to ________. In general, the business should sell for 3 to 5 times its annual net earnings.

A) look at a multiple of its net earnings
B) look at a comparison with similar businesses
C) use an appropriate benchmark
D) look at a professional appraisal

Question 27

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

A) in the business plan
B) in your first annual report
C) when you are ready to exit the business
D) the years sales peak

Question 28

Harvesting means to sell, take public, or merge a company to yield proceeds for the owner(s).

Question 29

William Petty's article on harvesting quotes Steven Covey who says, ________.

A) "The key to being effective in life is, 'beginning with the end in mind'."
B) "Your chance to sell or to merge typically occurs within the first two years of the life of the business."
C) "You may have only one chance to harvest your business."
D) None of the above.

Question 30

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

Question 31

This is an exit strategy when an entrepreneur sells his or her company to its managers.

A) a merger
B) a management buy-out
C) a management takeover
D) employee buy-out

Question 32

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) future value
B) net present value
C) fair market value
D) profit maximizing price

Question 33

To take a business public means to sell its stock on the stock market. The acronym for the first offering of a business' stock is ________.

A) FIFO
B) ALPO
C) IPO
D) IMPO

Question 34

This harvest option has the advantage of financing growth that the company could not achieve on its own.

A) increase the free cash flow
B) management buyout
C) employee stock ownership plan
D) merger or acquisition

Question 35

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

A) consumers
B) the IRS
C) investors
D) employees

Question 36

What are the four basic exit strategy possibilities? Describe them.

Question 37

Harvesting options include ________.

A) an IPO
B) merging or being acquired
C) increasing cash flows and a management buy-out
D) All of the above.

Question 38

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

A) market-based value
B) book value
C) future earnings
D) Any of the above.

Question 39

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) book value method
B) market-based approach
C) future earnings method
D) pay-back method

Question 40

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

A) the owner will have to look for buyers in the general public
B) it will prevent employees from having control of the company
C) employees will likely quit and leave
D) ESOPs offer tax breaks to the company