Question 1

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the ________, and the buyer of the franchise is the ________.

Accepted Answer

In a franchise arrangement, the company that sells the franchise is the franchisor, and the person who buys the franchise is the franchisee. Therefore, the best choice is C. Choice A is incorrect because Limited Partners rarely contribute to the daily operations of a company. Choice B is incorrect because co-signers and co-signees are typically involved in loans, not franchise arrangements.

Question 2

________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

Accepted Answer

Canada is the most popular target for American franchisors seeking to establish franchises in other countries due to its similarity in culture and language. Additionally, the Canadian government has a favorable attitude towards foreign investment, making entry into the market easier for American franchisors.

Question 3

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

Accepted Answer

The passage indicates that both large and small franchisors have found success in foreign countries by providing convenience and a predictable level of service and quality. This contradicts choices A, B, and C, which suggest that either few or only large or specific franchisors have had success in international markets.

Question 4

Zach is a franchisee with Digger's Doggies, a chain of hotdog shops. He was doing well until several other Digger's Doggies franchisees got in trouble and were forced to close their shops. Soon afterward, Zach's business declined and was also forced to close. This is an example of

Accepted Answer

The answer of Zach is a franchisee with Digger's Doggies,...

Question 5

The most popular type of business for franchising is

Accepted Answer

Restaurants are the most popular type of business for franchising because they have an established brand name and proven business model. They also often receive support and training from the franchisor, making it easier for franchisees to run a successful business. Additionally, food is a universal need and people will always need to eat, making it a reliable industry for investment.

Question 6

Opening and operating a franchise in a different country

Accepted Answer

Opening and operating a franchise in a different country may require the owner to adapt to social and cultural differences. Cultural differences can have a significant impact on how the franchise operates, including marketing strategies and product offerings. It is important for the franchise owner to recognize and adapt to these differences in order to be successful in the new market. The other options are not accurate: A) is not relevant to franchising, B) ignores the fact that operating in a foreign country presents unique challenges compared to domestic franchising, and D) is untrue as with any business venture there is always risk involved.

Question 7

Which of the following statements about buying a franchise is most accurate?

Accepted Answer

Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market. While franchisors are regulated, there is still a possibility of scams succeeding. Franchise agreements can also be complex and difficult to understand, despite federal regulations. Lastly, buying a franchise can be expensive, and the franchisor may not have worked out all of the details for setting up and running the business in every location.

Question 8

Franchisors may send reverse royalties to franchisees who

Accepted Answer

Reverse royalties are payments made by the franchisor to the franchisee in order to compensate them for any losses they have experienced due to the franchisor's actions. In this case, if the franchisor's online sales have hurt the franchisee's sales, the franchisor may send a reverse royalty to the franchisee to make up for the loss.

Question 9

The Sandwich Emporium, Inc. sells the rights to use its name and sell its signature sandwiches in a given market area to those willing to pay agreed-upon fees and meet specific contractual terms. The Sandwich Emporium is

Accepted Answer

The Sandwich Emporium, Inc. is selling the rights to use its name and sell its signature sandwiches in a given market area, which is known as franchising. Therefore, the best choice is B, which states that The Sandwich Emporium is a franchisor. The other choices are incorrect: A is incorrect because limited partnerships are not mentioned in the passage; C is incorrect because private subsidiary companies are not mentioned in the passage; and D is incorrect because tax-free investment potential is not mentioned in the passage.

Question 10

Qiang is ready to become a franchise owner and open one of the 50 Southwest Diners, a very successful fast food chain specializing in dishes from the American Southwest. Which of the following problems is Qiang most likely to encounter if she agrees to become a franchisee?

Accepted Answer

Becoming a franchisee often requires a significant investment in terms of initial costs and fees, including franchise fees, equipment, inventory, and advertising expenses. Therefore, high initial costs and fees are a common challenge for potential franchise owners like Qiang. Poor name recognition and visibility, lack of financing, and lack of managerial assistance are also potential problems, but they are not as common as high initial costs and fees.

Question 11

Enok, a prospective franchise owner, is looking to keep his monthly costs as low as possible. The franchisor he is checking out is advertising that royalty payments of 8% of sales could be as high as $300,000 per month. The franchisor is claiming that a franchisee can expect monthly sales to be as high as

Accepted Answer

To find the answer, we need to set up an equation based on the information given:

0.08x = 300,000

Where x is the monthly sales.

To solve for x, we divide both sides by 0.08:

x = 300,000/0.08 = 3,750,000

Therefore, a franchisee can expect monthly sales to be as high as $3,750,000.

Question 12

Lucy is preparing to invest in a new online franchise, Notable Moments. The franchisor provides the exclusive software and training for designing invitations and cards for special occasions such as weddings, graduations, and birth announcements. In return, the franchisee is required to pay a monthly fee to the franchisor. Lucy will use the Notable Moments software to create her own special designs that she will ultimately feature on her website. Order turnaround time must be fast. She can only take on as many clients as she can make good on delivery. An advantage of Lucy's online franchise is that she

Accepted Answer

The answer of Lucy is preparing to invest in a...

Question 13

Ivy is investing in a home cleaning franchise called HomeKeepers. At her first interview with the franchisor's selling agent, she was told the parent company expects 5% royalties. What are royalties?

Accepted Answer

Royalties are a share of the profits or a percentage share of revenues (net sales). In this scenario, the franchisor expects 5% of the revenues generated by the HomeKeepers franchise owned by Ivy.

Question 14

Franchised businesses are successful (both domestically and internationally) because

Accepted Answer

Franchised businesses are successful because customers like the predictability of the product and/or service. Franchises offer standardized menus, products, and services that customers have come to know and trust, no matter where they are in the world. This consistency leads to customer loyalty and repeat business.

Question 15

A ________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

Accepted Answer

The term used to describe the share of profits or percentage of sales a franchisee pays to a franchisor is royalty. This is typically outlined in the franchise agreement between the two parties. Dividend refers to a portion of a company's earnings that is distributed to shareholders, premium refers to an amount paid for insurance coverage, and co-pay is a portion of medical expenses that is paid by the patient.

Question 16

Which of the following is an advantage of franchises?

Accepted Answer

Franchising provides management and marketing assistance to franchisees, which allows them to utilize the resources of the franchisor, such as brand recognition, established business practices, and proven marketing strategies. This helps franchisees start and sustain their businesses, ultimately resulting in potential growth and success.

Question 17

One important consideration when prospecting for a good franchise business is

Accepted Answer

The market potential for the product or service is crucial when determining the success of a franchise business. It is important to ensure that the market is viable and that the prices charged for the product or service can generate a profit. Saturation, population level, and limited disclosure statements may also be important factors, but they are not as crucial as the market potential.

Question 18

Global franchising offers

Accepted Answer

Global franchising offers opportunities for both large and small franchises as it allows businesses to expand their reach into international markets using a proven business model. Franchisees can tap into established brand recognition, operational systems, and marketing materials, while franchisors benefit from the increased revenue generated by the expansion.

Question 19

One reason franchises have become so popular is that this arrangement provides the franchisee with

Accepted Answer

The answer of One reason franchises have become so popular...

Question 20

An evaluation of franchising would conclude that this type of arrangement

Accepted Answer

Franchising appeals to individuals who want the independence and freedom of owning a business but may not have the experience or knowledge to start a company from scratch. Franchising offers a proven business model, training and support, and established brand recognition, which may reduce the risk of failure compared to independent startups. However, franchising still carries a level of risk, including the potential for contractual disputes with the franchisor and limited control over business operations. While franchising is popular in the United States, it has also seen success in many other countries around the world.

Quiz 5: How to Form a Business

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the , and the buyer of the franchise is the .