Deck 6: Franchising and the Entrepreneur

Question 1

A franchise myth is that:

A)once the franchise is open,the franchisee has autonomy to run the business in what ever way he or she sees fit.
B)the owner need to be hands on.
C)the franchise will only expect to be paid when the franchisee is profitable.
D)franchises fail at a rate higher that independently owned businesses.

Answer 1

A

Question 2

A franchise is a system of distribution in which semi-independent business owners pay ________ and ________ to a parent company in return for the right to become identified with its trademark,to sell its product or services,and often to use its business format and system.

A)a percentage of sales; royalties
B)upfront costs; incremental costs
C)royalties; monthly consulting charges
D)fees; royalties

Answer 2

D

Question 3

The failure rate for franchises is:

A)higher than the average rate for new businesses.
B)no different from the rate for new businesses.
C)lower than the average rate for new businesses.
D)indeterminable because of the Right to Privacy Act.

Answer 3

C

Question 4

Which of the following is not a potential disadvantage of a franchise?

A)Unsatisfactory training program
B)Limited product line
C)Less freedom
D)All of the above are potential disadvantages of a franchise.

Question 5

A recent study reports that the success rate of franchisees increases when a franchise system:

A)requires franchisees to have prior industry experience.
B)requires franchisees to actively manage their operations.
C)has built a strong brand name with training programs to improve knowledge and skills.
D)All of the above increase the rate of success.

Question 6

Franchises have experienced three major growth waves since its beginning that include a focus on:

A)rapid growth,the fast food,and specific market niches.
B)stable growth,the service sector,and the food industry.
C)rapid growth,the service sector,and specific market niches.
D)predictable growth,the service sector,and specific market niches.

Question 7

When it comes to purchasing products,equipment,and incurring other expenses,the franchiser:

A)cannot require the franchisees to buy from the franchise company.
B)can set prices franchisees pay for the products but cannot set the retail price the franchisees charge.
C)is permitted to set the retail price for the franchisee.
D)cannot require franchisees to buy from an "approved" supplier.

Question 8

Benefits of involvement in a franchise experience include:

A)management training and support.
B)brand name appeal and standardization of goods and services.
C)national advertising exposure and financial assistance.
D)All of the above

Question 9

Which of the following is an indication of a dishonest franchiser?

A)A high-pressure sale
B)A "get-rich-quick" scheme
C)Attempts to discourage you from getting an attorney to review the contract
D)All of the above

Question 10

Franchisers generally do which of the following regarding financial assistance to franchisees?

A)Provide direct financing.
B)Assist in finding financing and occasionally provide direct assistance in a specific area.
C)Waive royalty fees for franchisees not making an adequate profit.
D)Franchisers provide no assistance because having or finding financing is a requirement for qualifying for a franchise.

Question 11

A significant advantage a franchisee has over an independent business is the participation in the franchisor's ________ largely due to the ________ the franchise offers.

A)centralized buying power: buying insight
B)centralized buying power; brand protection
C)centralized buying power: economies of scale
D)economies of scale: territorial protection

Question 12

The FTC's philosophy regarding the Franchise Disclosure Document (FDD)focuses on:

A)catching and prosecuting abusers of franchise laws.
B)verifying the accuracy of FDD information.
C)providing information to prospective franchisees and helping them make wise decisions.
D)licensing prospective franchisers.

Question 13

In addition to reading the franchiser's FDD,it would be wise for the potential franchisee to seek a franchise that offers which of the following?

A)A unique concept or marketing approach
B)A registered trademark
C)A positive relationship with franchisees
D)All of the above

Question 14

Franchises sales represent ________ percent of the United States' gross domestic product.

A)1.4
B)2.4
C)4.4
D)6.4

Question 15

Some franchisors offer ________ to give existing franchisees the right to exclusive distribution of brand name goods or services within a particular geographic are a.

A)territorial protection
B)exclusive rights
C)guaranteed protection
D)exclusivity

Question 16

Which of the following should make a potential franchisee suspicious about a franchiser's honesty?

A)Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over
B)An offer of direct financing of a specific element of the franchise package
C)Not providing detailed operational information until 10 days before signing the contract
D)Requiring franchisees to spend a certain percentage of profits on advertising

Question 17

________ franchising involves providing the franchisee with a complete business system,with an established name,the building layout and design,accounting systems,and other elements while ________ franchising allows the franchisee to use the franchiser's trade name without distributing the products exclusively under the franchiser's name.

A)Product distribution; trade name
B)Trade name; pure
C)Pure; trade name
D)Pure; product distribution

Question 18

Franchise royalty fees typically range from ________ to ________ percent of a franchisee's continuing sales.

A)1; 3
B)5; 9
C)3; 7
D)7; 12

Question 19

McDonald's is an example of a ________ franchise.

A)conversion forms
B)trade name
C)product distribution
D)pure

Question 20

Which of the following is not a potential advantage of franchising for the franchisee?

A)Management training and assistance
B)National advertising program
C)Centralized buying power
D)Limited product line

Question 21

Before entering a franchise contract,a potential investor should ask,"What can a franchise do for me that I cannot do for myself?"

Question 22

A franchise is an arrangement in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its products or services and often to use its business format and system.

Question 23

When the franchiser has the right to establish a semi-independent organization in a particular territory to recruit,sell,and support other franchises,it is known as a ________ franchise.

A)multi-unit
B)piggyback
C)conversion
D)master

Question 24

The failure rate for franchises is below that for other types of new businesses.

Question 25

Pure franchising involves the right to use all the elements of a fully integrated business operation.

Question 26

A method of franchising that gives the right to create a semi-independent organization in a particular territory is a:

A)piggyback franchise.
B)master franchise.
C)product distribution franchise.
D)conversion franchise.

Question 27

________ is an emerging international market for U.S.franchisers that is expected to realize the highest future growth rate.

A)Europe
B)Canada
C)Japan
D)China

Question 28

Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.

Question 29

Chris Jaffe,the owner of a small independent doughnut shop,is worried that a large doughnut franchise will open an outlet near her location and take away business.Taking a proactive approach,Jaffe contacts the franchise,and after a few months of negotiations,becomes a franchisee.Jaffe is an example of which trend in franchising?

A)Piggyback
B)Conversion
C)Master
D)Subfranchising

Question 30

Trade name franchising is a system of franchising in which a franchisee purchases the right to use the franchisor's trade name without distributing particular products under that name.

Question 31

A major advantage of a franchise contract is the national advertising campaign that most franchisers provide free of charge for their franchisees.

Question 32

One of the major trends in franchising is the ________ of American franchise systems.

A)replication
B)conversion
C)internationalization
D)reduction

Question 33

A study by the International Franchises Association reports that minorities own more than ________ percent of all franchises and women own ________ percent of franchises.

A)2;8
B)9;20
C)12.;25
D)19;25

Question 34

In a ________ ,a franchisee opens more than one unit in a broad territory within a specific time period.

A)multiple-unit franchising
B)master franchise
C)conversion franchising
D)piggyback franchising

Question 35

Pure franchising involves a system of franchising in which a franchisor sells a franchisee a complete business format and system.

Question 36

McDonald's recently set up several small franchises in nontraditional locations such as a hospital,a college campus,an airport,a subway station,and a sports aren a.These locations are based on the principle of:

A)conversion franchising.
B)intercept marketing.
C)multi-unit franchising.
D)piggyback franchising.

Question 37

Establishing a Baskin-Robbins franchise inside a Blimpee's franchise is an example of ________ franchising.

A)multi-unit
B)master
C)piggyback
D)diversionary

Question 38

Most franchisers provide extensive financial help such as loans and low-rate financing for their franchises.

Question 39

Examples of some benefits franchise systems offer include management training,brand appeal,standardization of goods and services,national advertising,proven business formats,centralized buying power,and site selection assistance.

Question 40

When a franchisee buys a franchise,he or she is purchasing the expertise and the business of the franchiser.

Question 41

What is the Franchise Disclosure Document? How can this document be of value to a potential franchisee?

Question 42

A multi-unit franchise gives the franchisee the right to open more than one franchise outlet in a territory within a specific time frame.

Question 43

Outline the recommended procedure for buying a franchise.

Question 44

The franchise contract defines the rights and the obligations of both parties and sets the guidelines that govern the franchise relationship.

Question 45

Having an attorney review and evaluate a franchise contract is unnecessary since the FTC requires all franchisers to offer a "standard" franchise contract.

Question 46

One of the first lessons in franchising is,"Do your homework before you get out your checkbook."

Question 47

If a franchiser encourages you to sign without reading the agreement,or discourages you from "spending the money on an attorney," this is a warning sign that the franchiser might be dishonest.

Question 48

Outline the benefits and drawbacks of buying a franchise.

Question 49

A master franchise gives a franchisee the right to create a semi-independent organization in a particular territory to recruit,sell,and support other franchisees.

Question 50

A good method for evaluating a franchiser's reputation is to interview existing franchise owners about the operation.

Question 51

Absentee franchise owners are consistently successful.

Question 52

The bigger the franchise,the more successful the franchisees will be.

Question 53

By signing the franchise contract,a franchisee typically surrenders some freedom and autonomy in operating his or her business.

Question 54

The Franchise Disclosure Document (FDD)is a document that every franchiser is required by law to give prospective franchisees before any offer or sale of a franchise.

Question 55

In addition to other fees,franchisees must also pay royalties but only on net profits; in other words,no profits,and no royalties.

Question 56

Franchisees in fast-growing systems reap the benefits of the franchisor's expanding reach,but they also may encounter the downside of a franchisor's aggressive growth strategy; market saturation.

Question 57

It is illegal for a franchiser to require franchisees to purchase products only from "approved suppliers."

Question 58

Most franchisees are better educated,more sophisticated,have more business acumen,and are more financially secure than those of just 20 years ago.

Question 59

Define franchising.Explain the three types of franchising.Which is the fastest-growing segment?

Question 60

The franchisee turnover rate is the rate at which franchisees leave a franchise system.

Question 61

Help Ralph make a decision by outlining the advantages and the disadvantages of a franchise arrangement.

Question 62

Assuming that Ralph has adequate capital,would you recommend that he invest in the franchise or open his own tobacco shop? Why?

Question 63

Explain three trends that are currently shaping the franchising industry.

Question 64

Explain the following franchise concepts and give an example of each: multiple-unit franchising,intercept marketing,conversion franchising,and master franchising.

Question 65

What are some indicators that a potential franchisee might be dealing with a dishonest franchise? What steps can a potential franchisee take to avoid becoming a victim of a dishonest franchise?