Question 1

When did the rapid growth of franchising begin?

Accepted Answer

The rapid growth of franchising began in the 1960s, when companies like McDonald's and Holiday Inn began using franchising as a way to expand their business. The popularity of franchising continued to increase throughout the following decades.

Question 2

What is included in the costs of franchising?

Accepted Answer

Signage is typically included in the costs of franchising as it is important for the franchisee to display the brand name and image. Labour, taxes, and depreciation are not typically included in the costs of franchising, as they are expenses that vary based on the specific franchise location and business operations.

Question 3

Antonio has an agreement with a shoe operation in Italy to sell its brand and business model to franchisees in Canada.What term best describes Antonio?

Accepted Answer

Antonio can be described as a master franchise as he has an agreement with the shoe operation in Italy to sell its brand and business model to franchisees in Canada. As a master franchisee, Antonio has the right to sub-franchise and receive a portion of the fees and royalties paid by the sub-franchisees.

Question 4

Nigel has created franchisee relationships with the managers of the multiple clothing stores he owned.He finds there is an increase in operating support.What would cause this?

Accepted Answer

Accounting and legal services are typically provided by the franchisor to the franchisee as part of the operating support package.

Question 5

Castro has a cleaning franchise.He would like to offer services to a nearby town but is not allowed to go beyond his territory.Which party in the franchise contract is Castro?

Accepted Answer

Castro is the franchisee, who operates the business within the agreed territory according to the terms and conditions of the franchise agreement with the franchisor. However, the other options do not apply since a lessee typically rents property, while a licensee receives permission to use intellectual property or technology under certain terms and conditions. It is the franchisee who typically invests in the business with guidance and support from the franchisor to ensure consistency and brand value.

Question 6

Which of the following is considered a disadvantage of becoming a franchisee?

Accepted Answer

Becoming a franchisee means giving up some degree of independence as the franchisee is required to follow certain rules and regulations set by the franchisor.

Question 7

Why are franchisees more motivated than salaried employees?

Accepted Answer

Franchisees have a vested interest in the success of the business since they have invested their own money in it. They also have profit incentives, as they are able to earn based on their performance. This motivation through financial gain is not typically present in salaried employees.

Question 8

Gillian wishes to expand her health food franchise to countries in the Caribbean and South America.What do these countries likely have in common to make franchising there attractive?

Accepted Answer

The common factor that would make franchising attractive in the Caribbean and South America is the expanding middle class. As the middle class grows, there is an increased demand for health foods and other health-conscious products. This presents a potential market for Gillian's health food franchise. The other options listed - smaller populations, lack of disposable income, and public transit - do not necessarily make franchising more attractive.

Question 9

Dominic is meeting with a franchisor to sign a written legal agreement that defines their business arrangement.Which document will Dominic be signing?

Accepted Answer

A franchise contract is a written legal agreement that defines the business arrangement between the franchisor and franchisee. It outlines the terms and conditions of the franchise, including the franchise fee, obligations of both parties, and intellectual property rights. The other options do not accurately describe the document that Dominic will be signing.

Question 10

Which of the following proclaims to be "the world's premier association dedicated to protecting,enhancing,and promoting franchising"?

Accepted Answer

The International Franchise Association (IFA) specifically proclaims to be "the world's premier association dedicated to protecting, enhancing, and promoting franchising" on their website. The Canadian Franchise Association (CFA), American Franchise Association (AFA), and Global Franchise Association (GFA) are not specifically stated as the premier association for franchising.

Question 11

Deirdre owns a flower shop franchise and her agreement with the franchisor allows her to open up to three more shops within a specified territory.Which term best describes Deirdre?

Accepted Answer

Deirdre is an area developer since she has permission to open three more shops within a specified territory. An area developer is a franchisee who has the right to open multiple units within a defined geographic area.

Question 12

Paula is about to start her restaurant franchise and is reviewing what she will allow with respect to which suppliers can or cannot be used.Which party in the franchise contract is Paula?

Accepted Answer

The answer of Paula is about to start her restaurant...

Question 13

What figure is a measure of the riskiness of current earnings and the expected growth rate of future earnings and is used to assess the earnings based value of a business?

Accepted Answer

The capitalization rate (also known as cap rate) is a figure that takes into account the riskiness of current earnings and the expected growth rate of future earnings. It is used to assess the earnings-based value of a business, and is commonly used in real estate valuation and business appraisals. The cap rate represents the expected rate of return an investor would require to invest in a property or business, given the level of risk associated with the investment.

Question 14

Brandon is interested in becoming a franchisee.He has meetings with his lawyer and bank manager.He has also hired the services of an accounting firm.What is Brandon preparing to do?

Accepted Answer

Brandon's preparations, including meetings with his lawyer and bank manager and hiring an accounting firm, indicate he is getting ready to sign the franchise contract. These steps are typical for someone ensuring their financial and legal readiness before making such a commitment.

Question 15

George is contemplating purchasing franchise.He is reading that the average franchisee reaches sales of $2 million by third year,the franchise has been operating for nine years,and there are 42 franchisees in Eastern Ontario.What is George reading?

Accepted Answer

George is likely reading the disclosure document, which is a legal document that franchisors are required to provide to potential franchisees before they sign a contract. It includes important information about the franchise system, such as financial performance representations, the franchisor's history and background, and fees and costs associated with the franchise.

Question 16

Janet,feeling the reputation of a business is very strong,pays $2.5 million for the business even though the assets were valued at $2 million.What is the excess amount over the value of the assets called?

Accepted Answer

The excess amount over the value of the assets is known as goodwill. Goodwill represents the reputation, customer base, and other intangible assets that contribute to the company's value beyond just its physical assets. It is common for a business to be sold for more than its asset value because of the value of its goodwill.

Question 17

Peter decides to open a painting franchise because he feels he will have immediate customers that recognize the business brand.What attracted Peter to purchasing a franchise instead of opening the business under his own name?

Accepted Answer

A proven marketing concept is what attracted Peter to purchasing a franchise, as he feels he will have immediate customers that recognize the business brand, indicating the importance of a well-established brand and marketing strategy.

Question 18

Anthony converts his operation of seven night clubs into a franchise business to free up time for more personal interests.What would one drawback be for Anthony in this new arrangement?

Accepted Answer

Franchising involves sharing profits generated by the franchisee's business with the franchisor, which in this case would be Anthony. This is a common drawback for franchisors, as they receive a portion of the profits rather than the full amount they might earn if they operated the business directly.

Question 19

Having no business experience at all,Connor is happy he opened a home renovations franchise.What attracted Connor to purchasing a franchise instead of opening the business under his own name?

Accepted Answer

The answer of Having no business experience at all,Connor is...

Question 20

What are the two methods of purchasing a business that is a corporation?

Accepted Answer

When purchasing a business that is a corporation, the two methods are buying the assets or shares of the business. Buying the assets involves purchasing the physical assets of the business, which can include inventory, equipment, and property. Buying the shares involves purchasing ownership in the corporation, which includes all assets and liabilities of the business. Buying the assets can be useful if you only want certain parts or assets of the company, while buying the shares can be more beneficial if you want to take over the entire business and all its assets and liabilities. However, each method has its own advantages and disadvantages, and it is important to consult with a lawyer or accountant before making a decision.

Quiz 4: Franchising and Buyouts