Deck 8: The Marketing Plan

Question 1

As described in the Opening Profile to Chapter 8, the key to being successful when operating a franchise is to be careful about asking for too much from the franchisor.

Answer 1

True

Question 2

The right of license granted by a company to an individual or group to market its products or services in a specific territory is known as franchising.

Answer 2

True

Question 3

According to the insert written by Marc Diener, To Be a Better Negotiator, Learn to Tell the Difference between a Lie and a Lie. Pretending to bend over backward to make meaningless concessions is not lying. It's __________.

A) applied psychology
B) a reservation price
C) a show of strength.
D) sales ability
E) None of the answers are correct.

Answer 3

applied psychology

Question 4

By definition, the franchisee is a person or corporation that offers a franchise.

Question 5

According to the insert written by by Marc Diener, To Be a Better Negotiator, Learn to Tell the Difference between a Lie and a Lie. Declaring your bottom line to be nonnegotiable (even when you're posturing) is not lying. It's __________.

A) applied psychology
B) a reservation price
C) a show of strength.
D) sales ability
E) None of the answers are correct.

Question 6

Marc Diener wrote and article dealing with negotiation ethics. The article was included in the end of this chapter. Diener explained "To Be a Better Negotiator, Learn to Tell the Difference between a Lie and a Lie"- what did he mean?

Question 7

Access to management expertise and training is an important advantage to buying a franchise for an entrepreneur, particularly if they do not have experience in the industry.

Question 8

Buying a franchise may or may not reduce the amount of capital needed by the entrepreneur for the business to be successful; this will depend on what services are received for the price paid.

Question 9

If the assistance in start-up is not good, the entrepreneur should probably look elsewhere for opportunities unless he or she already has extensive experience in the field.

Question 10

Most franchise agreements are written with the interests of both franchisee and franchisor in mind, otherwise, they would have difficulty getting franchisees to sign them.

Question 11

When it comes to expansion of a franchise network, the right of first refusal given to existing franchisees is an important concession which prevents over-saturation of a market.

Question 12

Franchising opportunities have often evolved from changes in the environment as well as important social trends.

Question 13

A leveraged buyout (LBO) occurs when an entrepreneur (or any employee group) uses borrowed funds to purchase an existing venture for cash. How does the entrepreneur determine whether a specific company is a good candidate for an LBO?

Question 14

An unproven franchise can be a better investment for an entrepreneur because it offers lower risk and capital requirements.

Question 15

The financial stability of the franchisor is important to the franchisee because it directly affects availability of the services that franchises are paying for and expect as a benefit of belonging to the system.

Question 16

Discuss how an entrepreneur should evaluate the purchase of an existing business.

Question 17

An entrepreneur buying an existing business is called a joint venture, because two companies are coming together to form one.

Question 18

When considering an acquisition, an entrepreneur should only be concerned about the price, as everything else about the business will be changed once they take over.

Question 19

In the process of acquiring an existing business determining a fair price is often complicated by the lack of financial records and accounting practices of small businesses.

Question 20

When entrepreneurs say they are looking for a good business to buy, what they really mean is they are looking for an undervalued asset.

Question 21

As described in the Opening Profile to Chapter 8, the problems faced by Greg Guy in his first franchise experience can be attributed to which of the following?

A) His lack of research and due diligence before purchase of the business.
B) His lack of understanding of how franchised businesses operate.
C) The franchisor's focus on profitability at the expense of their franchisees.
D) All of the answers are correct.
E) None of the answers are correct.

Question 22

As described in the Opening Profile to Chapter 8, after two experiences with franchised businesses, Greg Guy learned that the key to being successful with a franchise was __________.

A) it is better to be part of a group than not
B) to do your homework in advance and buy the right franchise
C) rely on hard work and careful attention to the bottom line
D) profitability is more important than customer satisfaction
E) None of the answers are correct.

Question 23

A safer way of becoming an entrepreneur would be to __________.

A) purchase a franchised business
B) purchase an existing business
C) get a job working for an entrepreneur
D) purchase a franchised business and purchase an existing business
E) All of the answers are correct.

Question 24

As defined in the text, the right or license granted by a company to an individual or group to market its products or services in a specific territory is known as __________.

A) a marketing intermediary
B) franchising
C) commission selling
D) a manufacturer's agent
E) None of the answers are correct.

Question 25

By definition, the person offering the franchise is known as the __________.

A) agent
B) franchisor
C) franchisee
D) parent company
E) None of the answers are correct.

Question 26

By definition, an entrepreneur who purchases the franchise is known as the __________.

A) agent
B) franchisor
C) investor
D) franchisee
E) None of the answers are correct.

Question 27

Discuss the disadvantages of acquiring an existing business to an entrepreneur, rather than starting a new venture.

Question 28

An advantage of franchising to the entrepreneur would be which of the following?

A) operating and structural controls
B) availability of management expertise
C) product acceptance
D) knowledge of the market
E) All of the answers are correct.

Question 29

An advantage of franchising to the entrepreneur would be which of the following?

A) requires fewer employees
B) access to cheapest sources of supplies
C) allows the venture to expand quickly using little capital
D) product acceptance
E) All of the answers are correct.

Question 30

Which of the following is not an advantage of franchising to the entrepreneur?

A) product acceptance
B) management expertise
C) capital requirements
D) ongoing royalties based on gross sales
E) operating and structural controls

Question 31

Many people are motivated to start their own business because they want to be their own boss and make their own decisions. This is not the case for many franchise owners, as they often_____________________.

A) Focus on product acceptance
B) Have no management expertise
C) act more as managers than entrepreneurs.
D) Focus on ongoing royalties based on gross sales
E) Obsess about operating and structural controls

Question 32

Franchises are often quite expensive to purchase and it is difficult to determine if you are getting value for your money. Initially, most franchises will _____________________.

A) charge a flat franchise fee
B) charge royalties on sales
C) require that franchisees contribute money to fund promotions
D) All of the answers are correct.

Question 33

A disadvantage of franchising to the entrepreneur would be which of the following?

A) loss of independence
B) difficult to determine value for money spent
C) one-sided and binding franchise agreement
D) over-saturation of franchise locations
E) All of the answers are correct.

Question 34

A disadvantage of franchising to the entrepreneur would be which of the following?

A) capital requirements
B) operating and structural controls
C) loss of independence
D) economies of scale in purchasing and marketing
E) All of the answers are correct.

Question 35

Which of the following is not a disadvantage of franchising to the entrepreneur?

A) loss of independence
B) difficult to determine value for money spent
C) operating and structural controls
D) one-sided and binding franchise agreement
E) over-saturation of franchise locations

Question 36

Which of the following is an (are) advantage(s) of franchising to the franchisor?

A) allows the venture to expand quickly with less capital
B) requires fewer employees
C) achieve economies of scale in purchasing
D) source of funds for marketing expenditures
E) All of the answers are correct.

Question 37

Which of the following is not an advantage of franchising to the franchisor?

A) allows the venture to expand quickly with less capital
B) requires fewer employees
C) control over quality and performance
D) achieve economies of scale in purchasing
E) source of funds for marketing expenditures

Question 38

A disadvantage of franchising to the franchisor would be which of the following?

A) difficulty in finding quality franchisees
B) problems dealing with franchisees
C) losing control over quality and performance
D) less profit than company-owned stores
E) All of the answers are correct.

Question 39

Determining Price: much of the franchise fee goes toward things that are difficult to assess-such as________________________.

A) goodwill associated with a product
B) training assistance
C) promotional help
D) ability to buy in bulk
E) All of the answers are correct.

Question 40

If you are an owner of a large, well-known national franchise, it is relatively easy to find out whether the franchisor is indeed providing marketing assistance. But if you are an owner of a smaller franchise, it is________________________.

A) Challenging to have goodwill associated with a product
B) Harder to get training assistance
C) Harder to get promotional help
D) much harder to determine if you are getting any value for your money
E) All of the answers are correct.

Question 41

When you buy a franchise, you have to sign a franchise agreement that stipulates what rights you have as a franchisee. Unfortunately for franchisees, the agreement is usually written________________________.

A) with the best interest of the franchisor in mind.
B) To make it harder to get training assistance
C) So you cannot get promotional help
D) To be much harder to determine if you are getting any value for your money
E) All of the answers are correct.

Question 42

Control over the marketing mix: The franchisor usually maintains complete control over the marketing mix and can force franchisees to ________________________.

A) have the best interest of the franchisor in mind.
B) make it harder to get training assistance
C) sell unprofitable products and/or set prices below break-even
D) be much harder to determine if you are getting any value for your money
E) All of the answers are correct.

Question 43

Many franchisees purchase the rights to a franchise for 10- and 20-year periods. After the time is up, it is often up to the franchisor to renew the agreement. Thus, a franchisee who spent 10 or 20 years investing and building a business ________________________.

A) have the best interest of the franchisor in mind.
B) may suddenly have it taken from him or her regardless of the success of the franchise.
C) sell unprofitable products and/or set prices below break-even
D) be much harder to determine if you are getting any value for your money
E) All of the answers are correct.

Question 44

Most franchisors will stipulate that the franchisee has to purchase supplies from either the franchisor or distributors approved by the franchisor. Many franchisees initially think this is a good practice and they will receive savings by buying in bulk. But some franchisors ________________________.

A) have the best interest of the franchisor in mind.
B) may suddenly have it taken from him or her regardless of the success of the franchise.
C) sell unprofitable products and/or set prices below break-even
D) mark up the supplies or keep any discounts.
E) All of the answers are correct.

Question 45

Oversaturation Some franchisors' overly aggressive expansion strategies have resulted in oversaturated markets. Many franchise owners think they can actually influence whether the franchisor will open another franchise in their area, but ________________________.

A) have the best interest of the franchisor in mind.
B) may suddenly have it taken from him or her regardless of the success of the franchise.
C) sell unprofitable products and/or set prices below break-even
D) this is usually not the case.
E) None of the answers are correct.

Question 46

As discussed in the text, the most common type of franchise __________.

A) are dealers who retail the product for the manufacturer
B) is a service franchise
C) is a technical process franchise
D) offer a name, image, and method of doing business
E) None of the answers are correct.

Question 47

An entrepreneur evaluating a franchise would consider which of the following criteria?

A) unproven versus proven franchise
B) financial stability of the franchisor
C) potential market for new franchise
D) profit potential for new franchise
E) All of the answers are correct.

Question 48

An unproven franchise __________.

A) is less expensive than a proven one
B) is riskier than a proven one
C) offers more excitement and challenge than a proven one
D) All of the answers are correct.
E) None of the answers are correct.

Question 49

An entrepreneur evaluating an investment in a franchise should be cautious when finding which of the following?

A) a very low bankruptcy rate for the franchise
B) a history of high dealer profitability
C) a well-organized and independently functioning franchisee association
D) a large proportion of the franchisor's profits are attributed to the selling of franchises
E) All of the answers are correct.

Question 50

From a legal perspective, in Canada, only Ontario and Alberta require franchisors __________.

A) to make full presale disclosure to prospective franchisees
B) to make a performance guarantee for the franchise
C) to share liability with their franchisees in the event of business failure
D) to offer exclusive territories to franchisees and the right of first refusal on new locations
E) All of the answers are correct.

Question 51

Financial stability of franchise. The purchase of a franchise should entail an assessment of the financial stability of the franchisor. A potential franchisee should develop answers to which questions.

A) How many franchises are in the organization?
B) How successful is each member of the franchise organization?
C) Are most of the profits of the franchise a function of fees from the sale of franchises or from royalties based on profits of franchisees?
D) Does the franchisor have management expertise in production, finance, and marketing?
E) All of the answers are correct.

Question 52

An entrepreneur investing in a franchise should be aware of and pay attention to which of the following statements?

A) Franchises will vary in success rate, profit potential, and attractiveness.
B) You get what you pay for in franchising; the more you get, the more you will pay.
C) Completing a business plan for a franchise is more important then ever.
D) Independently verify the financial projections provided by the franchisor.
E) All of the answers are correct.

Question 53

Contract length and renewal and termination terms. The duration of franchise agreements can vary significantly. Sometimes the renewal is automatic, but in some cases __________________.

A) Franchises will vary in success rate, profit potential, and attractiveness.
B) You get what you pay for in franchising; the more you get, the more you will pay.
C) It is up to the franchisor's discretion to renew.
D) Independently verify the financial projections provided by the franchisor.
E) All of the answers are correct.

Question 54

If a franchise looks good as an investment, the entrepreneur may request a franchise package from the franchisor; Front-end procedure fees, royalty payments, expenses, and other information should be compared with those of franchises in the same field, as well ______________________.

A) termination
B) exclusivity of territory
C) as in different business areas.
D) initial price of the franchise
E) None of the answers are correct.

Question 55

Discuss the advantages of acquiring an existing business to an entrepreneur, rather than starting a new venture.

Question 56

To be suitable for using franchising as an expansion strategy, the business venture should__________.

A) have a strong brand name, unique product or service, and operating systems in place
B) be a publicly-held company licensed to operate in more than one jurisdiction
C) be capable of offering a profit guarantee
D) employ the help of professional franchise selling teams
E) None of the answers are correct.

Question 57

An entrepreneur seeking to use franchising as an expansion strategy should do which of the following?

A) prepare the business plan
B) determine if the venture is suitable for franchising
C) prepare the franchise package of information
D) prepare legal documents such as the franchise agreement
E) All of the answers are correct.

Question 58

Discuss what information an entrepreneur might want when investigating the purchase of a franchised business?

Question 59

Acquisition of another business can achieve which of the following objectives of an entrepreneur?

A) eliminating a competitor from the marketplace
B) as a means of growth
C) entering a new market
D) offering new products or services
E) All of the answers are correct.

Question 60

To an entrepreneur, which of the following would be an advantage of an acquisition versus starting a new business?

A) established customer base
B) customers already familiar with location
C) existing employees
D) reduction in startup time
E) All of the answers are correct.

Question 61

To an entrepreneur, which of the following would most likely not be an advantage of an acquisition versus starting a new business?

A) established customer base
B) reduction in startup time
C) valuation of the business
D) customers already familiar with location
E) established marketing structure

Question 62

To an entrepreneur, which of the following would be a disadvantage of an acquisition versus starting a new business?

A) marginal success record of existing business
B) overconfidence in their ability to improve the business
C) key employee loss
D) valuation of the business
E) All of the answers are correct.

Question 63

To an entrepreneur, which of the following would most likely not be a disadvantage of an acquisition versus starting a new business?

A) marginal success record of existing business
B) overconfidence in their ability to improve the business
C) opportunity to be creative
D) valuation of the business
E) key employee loss

Question 64

Broadly speaking, most ventures that are available for sale __________.

A) are undervalued
B) lack established location
C) have an erratic, marginally successful, or even unprofitable track record
D) All of the answers are correct.
E) None of the answers are correct.

Question 65

As discussed in the text, the purchase of an existing business is often complicated by __________.

A) the owner's sentimental attachment to the business
B) the lack of financial records and accounting practices of small businesses
C) the legal process required to change ownership records
D) outstanding tax liability issues
E) None of the answers are correct.

Question 66

In the financial assessment stage of the purchase of an existing business, the entrepreneur should be concerned with which of the following?

A) validity of the financial statements
B) reliability of the financial statements
C) financial condition of the business
D) validity of the financial statements and financial condition of the business
E) reliability of the financial statements and financial condition of the business

Question 67

When evaluating the assets in the purchase of an existing business, the entrepreneur should be concerned with which of the following?

A) condition of the assets
B) usage of the assets
C) definition of assets
D) All of the answers are correct.
E) None of the answers are correct.

Question 68

An entrepreneur seeking to purchase an existing business would want to know that research indicates that any goodwill associated with a small to medium-sized business is worth __________.

A) very little; no more that 10% to 20% of the costs of the assets
B) between 20% to 30% of the costs of the assets
C) between 30% to 40% of the costs of the assets
D) whatever the current owner thinks the market will bear
E) None of the answers are correct.

Question 69

When looking for an existing business to purchase, an entrepreneur would consider which of the following criteria?

A) potential synergy between the entrepreneur's current business and the business being considered
B) integration with existing business
C) management capability of the previous owner and its effect on performance
D) future outlook of the industry
E) All of the answers are correct.

Question 70

When determining the value of an existing business for sale, the market capitalization or multiple method uses __________.

A) the current market value of the company's stock
B) the weighted average net income of the business multiplied by a desired rate of return on the investment
C) the current market value of the company's assets less its outstanding liabilities
D) the weighted average net income of the business divided by the maximum acceptable risk factor
E) None of the answers are correct.

Question 71

Discuss the three different types of franchises, as presented in the text.

Question 72

In the purchase of an existing business, the direct purchase of the firm's entire assets usually results in__________.

A) a long-term capital gain to the seller
B) double taxation on the funds used to repay the money borrowed to acquire the company
C) a short-term tax saving for the buyer
D) a long-term capital gain to the seller and a short-term tax saving for the buyer
E) a long-term capital gain to the seller and double taxation on the funds used to repay the money borrowed to acquire the company

Question 73

A leveraged buyout (LBO) occurs when an entrepreneur (or any employee group) uses borrowed funds to purchase an existing venture for cash. Most LBOs occur because the entrepreneur purchasing the venture believes he or she could __________.

A) Profit from a long-term capital gain to the seller
B) double taxation on the funds used to repay the money borrowed to acquire the company
C) run the company more efficiently than the current owners
D) a long-term capital gain to the seller and a short-term tax saving for the buyer
E) None of the answers are correct.

Question 74

A leveraged buyout (LBO) The purchaser needs a great amount of external funding since the personal financial resources needed to acquire the firm directly are frequently __________.

A) Profit from a long-term capital gain to the seller
B) limited
C) run the company more efficiently than the current owners
D) a long-term capital gain to the seller and a short-term tax saving for the buyer
E) None of the answers are correct.

Question 75

Discuss the disadvantages to an entrepreneur of purchasing a franchise rather than starting a new venture on their own.

Question 76

As stated in the text, most leveraged buyouts occur __________.

A) when a planned merger fails to attract interest from the investment community
B) when interest rates climb, thus increasing the net yield from the investment
C) when the buying group believes that they can manage the company more efficiently than the current owners
D) three years after the initial public offering (IPO)
E) None of the answers are correct.

Question 77

Discuss the advantages to an entrepreneur of purchasing a franchise rather than starting a new venture on their own.

Question 78

As discussed in the text, the key to a successful leveraged buyout is __________.

A) the relative debt to equity ratio
B) timing and luck
C) generating enough cash flow from increased sales and profits to cover the debt obligations
D) keeping the company together to continue operations rather than splitting it apart to unlock shareholder value
E) None of the answers are correct.

Question 79

According to the insert written by by Marc Diener, To Be a Better Negotiator, Learn to Tell the Difference between a Lie and a Lie. In negotiation, exaggerating benefits, ignoring flaws or saying "I don't know"when in reality you do is not considered lying. Rather, it's __________.

A) applied psychology
B) a reservation price
C) a show of strength.
D) sales ability
E) None of the answers are correct.

Question 80

Negotiating how the benefits of the relationship will be allocated between the Parties is called the__________.

A) bargaining zone
B) reservation price
C) integration task
D) distribution task
E) None of the answers are correct.