Deck 5: Buying a Business and Franchising

Question 1

Market value is:

A) the price where demand and supply meet.
B) the lowest amount that a seller will accept in the market.
C) the net realizable value of a business's fixed assets.
D) the average of the three most recent sales transactions in an industry.

Answer 1

A

Question 2

The times earnings method is also called:

A) price-earnings ratio.
B) efficiency measure.
C) return on investment accelerator.
D) productivity velocity method.

Answer 2

A

Question 3

Established franchises can provide:

A) healthy opportunities for franchisee creativity.
B) instant brand recognition.
C) guaranteed cash flow.
D) franchisee success.

Answer 3

B

Question 4

The fastest growing sector in the Canadian economy is:

A) the manufacturing sector.
B) the service sector.
C) the professional sector.
D) the import/export sector.

Question 5

Strong customer relations is usually an indicator:

A) of low pricing.
B) of a market with few competitors.
C) of good management and employees.
D) of a high-demand product or service.

Question 6

When purchasing a business, non-liquid assets:

A) should by ignored for business planning purposes.
B) should be subjected to an independent appraisal.
C) should be considered not to have any value.
D) should be valued at 20% of total fixed assets.

Question 7

According to research, traditional franchise businesses include:

A) retailing.
B) hotels.
C) construction.
D) soft drink companies.

Question 8

Under a franchising arrangement:

A) a franchisor owns an outlet.
B) a franchisee develops the best system for their outlet.
C) a franchisee owns an outlet.
D) both the franchisor and the franchisee operate an outlet.

Question 9

If a business is not listed as being for sale:

A) then it won't be for sale.
B) it's not worth investigating it.
C) a prospective purchaser can ask the owner if they would be interested in selling.
D) its privacy should be respected.

Question 10

It is argued in the text that the most significant advantage of buying a business is:

A) it has an established image and track record.
B) to avoid being sued.
C) it has already been registered with the authorities.
D) it has inventory.

Question 11

Common sources of businesses for sale include:

A) yellow pages hard copy or web-based).
B) trade journals.
C) FAQ pages.
D) supermarket ad boards.

Question 12

Government departments:

A) are not likely to be aware of business for sale.
B) are never connected with individual businesses.
C) often act as brokers in connecting purchasers and sellers of businesses.
D) may be aware of businesses for sale.

Question 13

One of the attractive benefits of being a franchisee is:

A) future income is a high certainty.
B) it can replace a lost job.
C) the total freedom of owning your own business.
D) there is no need to learn about an industry in depth.

Question 14

Franchisee training is most likely to involve:

A) competitor research.
B) Internet research.
C) site visits.
D) personal industry reading.

Question 15

Goodwill:

A) is essentially a business's favourable reputation.
B) measures the added value of a product.
C) always exists so long as a business operates.
D) is the process of extending credit to needy customers.

Question 16

An offer to purchase will most likely be made:

A) by the buyer's banker on behalf of the buyer.
B) to the seller's CEO.
C) by the buyer or through a realtor or lawyer.
D) anonymously until accepted).

Question 17

According to the text, most businesses that are for sale:

A) have valuable locations to transfer to a new owner.
B) provide a steady base on which it can be expanded.
C) have solid banking arrangements in place.
D) are only marginally successful.

Question 18

is a type of franchise.

A) Wholesaler-retailer-directed
B) Manufacturer-retailer-directed
C) Service-retailer depot
D) Retailer-service depot

Question 19

Industry analysis may not be required if:

A) a buyer has considerable experience in the industry.
B) there is no information readily available.
C) the cost to do so would be prohibitive.
D) the industry is not dominated by one large business.

Question 20

A franchise system can best be characterized as:

A) a voluntary chain.
B) a business excellence strategy.
C) a money-making machine.
D) an approach to market dominance.

Question 21

Secret shoppers:

A) are used by government agencies to detect tax fraud.
B) refers to customers who pretend not to be interested in making a purchase.
C) is a strategy used by some franchisors.
D) means asking someone else to make your purchase in their name.

Question 22

Potential franchisees will usually have to provide:

A) their work history.
B) a current health certificate.
C) the names of relatives who have succeeded in business.
D) collateral.

Question 23

A proven franchise offers:

A) small market share and weaker competition.
B) greater opportunity and more freedom.
C) lower risk and higher financial investment.
D) higher returns and reduced employee turnover.

Question 24

Future growth of franchising will:

A) make competition more difficult for small businesses in certain industries.
B) reduce employment numbers.
C) result in less competition.
D) lead to more monopolies.

Question 25

Franchises with territorial protection:

A) are increasing in frequency.
B) are illegal due to non-competition laws.
C) are generally not possible.
D) are the most desirable.

Question 26

Becoming a franchisor:

A) is a retirement strategy.
B) is inevitable in a successful business.
C) is a form of entrepreneurship.
D) is a way of reducing one's management pressures.

Question 27

Converting existing chain outlets into franchises is called:

A) piggybacking.
B) teamchising.
C) branchising.
D) mini-franchises.

Question 28

Which is not a common franchise agreement restriction?

A) Product or service offered
B) Remodelling clauses
C) Exaggeration of financial success
D) Line forcing

Question 29

Which is not a potential disadvantage of franchising?

A) Proven dispute resolution methods
B) Cost of the franchise
C) Lack of security
D) Saturation of the market

Question 30

Of the following elements, a potential franchisor should be concerned most about:

A) renewal and termination terms.
B) hours of business operation.
C) future Canadian/US dollar exchange rates.
D) supply chains.