Deck 14: Buying a Franchise or Franchising

Question 1

Which of the following describes a franchisee in the franchise system?

A) seller
B) owner
C) buyer
D) distributor

Answer 1

buyer

Question 2

Which of the following provinces have developed franchise legislation to protect franchisees?

A) Nova Scotia, Alberta, and Ontario
B) Alberta, Ontario, Manitoba, New Brunswick, and PEI
C) Ontario, Manitoba, New Brunswick, and Nova Scotia
D) PEI, Manitoba, and Nova Scotia

Answer 2

Alberta, Ontario, Manitoba, New Brunswick, and PEI

Question 3

According to the Canadian Franchise Association, what percentage of retail sales are provided by franchises?

A) 80
B) 60
C) 40
D) 20

Answer 3

40

Question 4

Which of the following is synonymous with a reputable franchisor?

A) corporate support and training
B) franchisor disclosure documents
C) ground floor opportunities
D) rights of encroachment

Question 5

According to the Canadian Franchise Association, what percentage of the Canadian GDP is contributed to by franchising?

A) 5
B) 10
C) 15
D) 20

Question 6

According to the Canadian Franchise Association, franchising represents what amount of Canadian dollars spent in goods and services?

A) 1 out of every 10 consumer dollars
B) 2 out of every 10 consumer dollars
C) 1 out of every 5 consumer dollars
D) 2 out of every 5 consumer dollars

Question 7

What is the term for an individual operator who is licensed to operate under the franchisor's rules and directives?

A) licensee
B) franchisee
C) franchisor
D) dealer franchise

Question 8

The franchisee has more control than the franchisor over which of the following factors?

A) geographic location
B) selection of employees
C) specifications of quality and service
D) sources of supply for products and services

Question 9

According to the author, how many types of franchise networks are available to the franchisor?

A) 1
B) 2
C) 3
D) 4

Question 10

Which of the following would a franchisee be LEAST likely to consider an advantage?

A) standardized quality of goods and services
B) national advertising programs
C) saturated markets
D) management training and counselling

Question 11

Which of the following represents key advice when you are ready to purchase a franchise?

A) Determine the product or service to sell.
B) Determine the methods used to sell the product or service.
C) Seek legal advice on the terms and conditions of the franchise contract.
D) Identify the sources of supply for the product or service.

Question 12

According to the author, which of the following best relates to franchise encroachment?

A) it is illegal in Canada
B) it is difficult to protect territory
C) it is a potential benefit to the franchisee
D) it is a specific issue for "ground-floor" franchisors

Question 13

Which of the following is the franchisor normally required to pay to the franchisee?

A) royalty fees
B) royalty and franchise fees
C) a direct franchising fee
D) franchise fees

Question 14

According to the author, what is the rationale for a non-refundable deposit when negotiating for a franchise?

A) to prove that the applicant has the cash
B) to ensure negotiations in good faith
C) to encourage both sides to seek legal advice
D) because it is required by the Canadian government.

Question 15

Tim Hortons is an example of which of the following franchise types?

A) associate
B) licensing
C) business format
D) dealership

Question 16

According to the author, which of the following is recommended when providing a deposit to the franchisor?

A) pay cash to get a discounted price
B) place the money in trust with your lawyer
C) ensure the refundable deposit has interest added
D) negotiate or refuse the deposit

Question 17

Which of the following rights does the franchisee have once payment of the franchise fee has been rendered?

A) to buy other franchises as they materialize
B) to do business in his or her own name
C) to use the franchisor's name and system
D) to share in any of the profits made by the franchisor

Question 18

What is the minimum number of years a franchise should be in business to prove that is it established and successful?

A) 3
B) 5
C) 7
D) 10

Question 19

According to the author, what is implied by the expression "grow with us"?

A) caveat emptor: let the buyer beware
B) great opportunity awaits
C) be the first to take full advantage of the opportunity
D) as a franchisor, you will fulfill the needs of the customer rather than the franchisee

Question 20

According to the author, which of the following describes the Canadian Franchise Association?

A) it is regulated heavily by the federal government
B) it is regulated by each province and territory
C) it has no government requirements
D) it must report yearly to Statistics Canada

Question 21

Home Hardware is an example of which type of franchise system?

A) licensing format
B) dealership relationship
C) business format
D) associate relationship

Question 22

1-800-GOT-JUNK? is an example of which type of franchise system?

A) licensing format
B) dealership relationship
C) business format
D) associate relationship

Question 23

According to the textbook, which of the following is an example of a dealership relationship franchise?

A) PropertyGuys.com
B) Tim Hortons
C) Second Cup
D) 1-800-GOT-JUNK?

Question 24

Which of the following best describes a master franchise network?

A) The franchisor normally pays the master franchisee a management fee for operating and developing the territory.
B) Normally, master franchisees retain a portion of the franchise fees and royalties paid by subfranchisees.
C) Subfranchisees work directly with the franchisor.
D) Master franchisees must operate new outlets by themselves.

Question 25

According to a survey done by the Research Strategy Group in 2008, which age group had the majority of franchises?

A) 65+
B) 52-64
C) 45-51
D) 35-44

Question 26

According to the textbook, which of the following describes the success of PropertyGuys.com?

A) they found success as franchisees
B) they chose not to franchise their businesses
C) they grew their businesses by becoming franchisors
D) they chose to become master franchisors

Question 27

Which of the following best describes the provincial or federal laws of franchising?

A) A franchise contract must be registered in the province where the business operates.
B) You are required to get legal advice before signing a franchise agreement.
C) Franchisees have the right to sell or assign their franchise rights.
D) As of 2013, only four provinces are regulated.

Question 28

According to the text, which of the following describes your first step toward franchising?

A) create a business plan
B) ensure you have $0.5 million in liquid cash
C) complete an application form and be ready for an interview
D) ask to see the franchisor's financials and share them with your accountant

Question 29

According to the textbook, which of the following offers correct information about the success of franchisees?

A) Only 15 percent of all franchises fail in the first five years.
B) Franchises are more profitable than independently owned businesses.
C) Regular government surveys on franchising are conducted.
D) Most information on franchise success comes from franchise associations.

Question 30

According to the text, which of the following is a major problem plaguing the franchise industry?

A) competition
B) lack of financing
C) poor or lack of in-depth training
D) poor long-term success rates

Question 31

Which of the following is a main benefit to buying a franchise?

A) higher profits guaranteed
B) increased purchasing power
C) name recognition
D) easy start-up

Question 32

According to the author, which of the following is signalled by "grow with us"?

A) rapid expansion
B) you are the right fit
C) return on investment is guaranteed
D) buyer beware

Question 33

Second Cup and 1-800-GOT-JUNK? are examples of dealership relationship franchises.

Question 34

A good way to evaluate the corporate culture of a franchise system is to find out how the franchisor helps its franchisees who want to sell their businesses.

Question 35

Franchise fees are ongoing payments required by the franchisee.

Question 36

According to the textbook, ground-floor franchise opportunities are usually the safest.

Question 37

Reputable franchisors don't need to provide franchisee training.

Question 38

According to the textbook, normally a franchisee will be required to pay a royalty fee that could range between 2 percent and 15 percent of sales.

Question 39

The royalty fee is usually an ongoing obligation to pay to the franchisor a percentage of the franchisee's net income.

Question 40

According to the textbook, one of the major advantages of franchising is that the franchisee is guaranteed profits.

Question 41

Franchisees like PropertyGuys.com found success through franchising.

Question 42

A business format franchise normally establishes its own policies and management procedures.

Question 43

According to the textbook, brand-name recognition and corporate support are key reasons for buying a franchise.

Question 44

If you buy a business format franchise, you don't need to surrender all your independence.

Question 45

According to the textbook, most franchisors offer start-up financing, so you probably will not have to go to the bank if you decide to buy a franchise.

Question 46

According to Statistics Canada, the failure rate among franchised businesses is lower than among nonfranchised businesses of the same type.

Question 47

According to the textbook, Alberta and Ontario are the only provinces that have put into place any substantive franchise legislation.

Question 48

Federal franchise law states that the term competitive prices in a franchise agreement means "competitive in relation to the prices provided by independent suppliers."

Question 49

According to the textbook, any franchise operating in Canada has been required to be a "member in good standing" of the Canadian Franchise Association.

Question 50

According to the textbook, the business format franchise system is the most popular type of franchise system.

Question 51

According to Mac Voisin, president of M&M Meat Shops, true entrepreneurs will die of frustration in a franchise system because they want to do everything their own way.

Question 52

According to the textbook, when you purchase a franchise, you will be required to sign a contract that could be as long as 50 pages, with numerous appendices attached.

Question 53

According to the textbook, all franchise agreements include a protected territory.

Question 54

Franchisors are required to file government documents and register their franchise business.

Question 55

By law, franchisors in all provinces are required to provide franchisees with balance sheet and income statement information, as well as any bankruptcy history.

Question 56

Franchise agreements do not contain conditions for a renewal period after the contract agreement has expired.

Question 57

According to the textbook, typically, current franchisees are offered prime locations before these locations are offered to outsiders or first-time franchise buyers.

Question 58

According to Mac Voisin, founder of M&M Meat Shops, the true entrepreneur will more likely want to become the franchisor rather than the franchisee.

Question 59

According to the textbook, only 10 percent of all franchisees fail in their first five years of operation.

Question 60

A franchise is a distribution system in which the franchisee grants the right to sell its products or services to the franchisor.

Question 61

A master franchise is a direct franchise network.

Question 62

A franchisor is legally responsible for any verbal promises made prior to the signing of the franchise agreement.

Question 63

A franchise is a special kind of partnership in which one company, termed the franchisor, grants the rights to sell its products or services to another company or individual, called the __________.

Question 64

The most common type of franchise arrangement is the __________ __________ __________.

Question 65

In a franchise situation, the most entrepreneurial traits are exhibited by the ________________.

Question 66

A situation in which franchisors compete with franchisees by putting an outlet nearby or setting up alternative distribution channels, such as mail order or the Internet, is called __________.

Question 67

A monthly percentage of gross sales paid by a franchisee to a franchisor is called a(n) __________ __________.

Question 68

A business arrangement in which a franchisor sells the rights to an area to a franchisee is known as _____________ _____________.

Question 69

A business arrangement in which a franchisee deals directly with the franchisor is called ___________ ______________.

Question 70

You are encouraged to consider franchising your idea and become the ________________.

Question 71

Briefly describe two of the most common types of franchise arrangements or systems. Give an example of each type.

Question 72

List five benefits a franchisor should provide to a franchisee.

Question 73

List three ways a franchisor earns money from a franchisee.

Question 74

List three items you would find on a franchise checklist.

Question 75

Should a true entrepreneur purchase a franchise?

Question 76

Explain the difference between direct franchising and master franchising.

Question 77

List and briefly describe five major pitfalls that plague the franchise industry.