Question 1

Ryan is an independent musician looking to finance a new holiday album. He has wide-reaching appeal with his soulful voice and expert guitar playing. He does not want to ask friends and family for money, as they have all given him money for previous albums. Which of the following should Ryan consider?

Accepted Answer

The answer of Ryan is an independent musician looking to...

Question 2

Eric decides to open a small catering business to serve local businesses. Based on this information, what is his most likely source of funding?

Accepted Answer

As a small catering business, Eric is most likely to seek funding from personal funds, family, and friends because bank lending, angel investment, and venture capital are more commonly associated with larger and more established businesses. Personal funds, family, and friends are also a common source of funding for small businesses and startups.

Question 3

After graduating from college, Alyson and Salma started their own photography business. They currently hold photo shoots with clients at outdoor locations or in Salma's basement, where she has a small studio. Their business has grown substantially, and Alyson and Salma are looking to renovate a building in town, which will have two studios. In addition, they would like to hire another photographer. Alyson and Salma would likely seek funding from which of the following?

Accepted Answer

Since Alyson and Salma are looking to renovate a building and hire another photographer, they will likely need a significant amount of funding. Personal funds and seeking funding from friends and family may not be enough to cover the costs, and an angel investor or venture capitalist may not be necessary at this stage in their business. Therefore, the best option for funding would be to seek a bank loan.

Question 4

Rizwan decides to purchase and operate a Subway restaurant. What is Rizwan's role in this scenario?

Accepted Answer

Rizwan is the franchisee in this scenario as he is purchasing and operating a Subway restaurant under the franchise agreement with Subway as the franchisor. The supplier would refer to the entity providing goods or raw material to the franchisee, and the licensor would refer to the entity licensing out their intellectual property to the franchisee.

Question 5

Five friends from college have grown their mobile messaging business into a powerhouse with over 700 million users worldwide. They have received venture capital funding in the past but now need a much larger round of funding to fuel their high growth potential. What is their most likely source of funding?

Accepted Answer

With over 700 million users, the mobile messaging business has already reached a significant scale and may be ready for a public stock offering to raise the large amount of funding required for continued growth. Personal funds, family, and friends would not be sufficient for such a large round of funding, bank lending may not be feasible or desirable for a young, high-growth startup, and angel investors may not have the ability to provide the necessary capital.

Question 6

Karl is interested in starting his own website design business. He has designed several websites for his friends, his service fraternity, and his sister's dance team. Karl needs some funding in order to advertise his business and purchase a new computer. Which of the following should Karl seek funding from?

Accepted Answer

Since Karl is just starting out and only needs funding for advertising and a new computer, seeking funding from venture capitalists or angel investors may not be the best option as they generally invest larger amounts of money in startups with high growth potential. A bank loan may also not be feasible as Karl may not have the credit history or collateral required to secure a loan. Friends and family, on the other hand, may be more willing to provide smaller amounts of funding without the strict requirements of traditional investors or loans.

Question 7

Lin has successfully launched his wireless speaker business, which is growing quickly. He would like to expand into overseas markets but was told by several banks that this idea was too risky. That may be fine, though, because, in addition to funding Lin would also like technical advice to help grow the business. What type of funding would best fit Lin's situation and needs?

Accepted Answer

Angel investors can provide both funding and valuable technical advice to help grow a business, making them suitable for Lin's needs.

Question 8

Sun-Hi would like to purchase an ice cream franchise. Which of the following is an advantage of purchasing the franchise as opposed to establishing a new business?

Accepted Answer

Purchasing a franchise gives access to an established brand name and marketing support, which can help attract customers and establish the business more quickly. The other options are not necessarily advantages of purchasing a franchise.

Question 9

Piotr owns a successful technology security firm and is seeking venture capital funding to grow his business. Which of the following can be a downside to accepting venture capital funding?

Accepted Answer

Pressure on the company to deliver fast growth is a downside to accepting venture capital funding. Venture capitalists typically invest in companies with high growth potential, and they expect to see a return on their investment within a relatively short period of time. This can put pressure on the company to grow quickly, even if it is not in the best interests of the company in the long run.

Question 10

Lina is struggling with the new clothing store she started from scratch. Had she purchased the clothing store franchise she had considered, what would the advantage have been?

Accepted Answer

Purchasing a franchise means having access to a recognized and established brand, and the marketing support that goes along with it. This can give a new business owner a significant advantage in attracting customers and building a customer base. The other choices imply greater control over certain aspects of the business, but do not necessarily provide a competitive advantage.

Question 11

Hafiza considered purchasing a restaurant franchise but ultimately decided to create his own start-up from scratch. Which of the following is an advantage of establishing his start-up instead of purchasing the franchise?

Accepted Answer

Establishing his own start-up allows Hafiza to keep all profits, while purchasing a franchise typically involves paying royalties or fees to the franchisor.

Question 12

Which of the following describes the role of the franchisee?

Accepted Answer

The franchisee is responsible for supplying their own labour and capital to own and operate the franchised outlet. A franchisor typically provides the required training, known and advertised business name, and necessary materials.

Question 13

Emma and Hailey have grown their subscription cosmetics business by 500% each of the last two years. They have the potential to rapidly grow much larger if they could get access to the right funding. They are talking to some firms that specialize in funding high-growth companies. Emma and Hailey realize the funding decisions made by these firms are highly competitive and selective. What type of funding are they pursuing?

Accepted Answer

Emma and Hailey are pursuing venture capital funding since they have a high-growth business that has grown by 500% each of the last two years and has potential for rapid growth. Venture capitalists specialize in funding high-growth companies and can provide the necessary funding, resources, and expertise to help the business grow even further. The reference to competitive and selective funding decisions also supports the idea that they are pursuing venture capital funding, as it is a highly competitive market with firms vying to invest in the best opportunities. Bank lending and public stock offerings are not typically used for high-growth companies, and angel investors tend to provide smaller amounts of funding to early-stage startups.

Question 14

The Martin family owns two Tim Hortons locations in Manitoba. The franchisor has announced that Tim Hortons will begin offering blended shakes in time for the busy summer season. This new menu offering requires franchisees like the Martin family to purchase expensive new equipment in order to make the blended shakes. This is an example of which trade-off of owning a franchise?

Accepted Answer

One of the trade-offs of owning a franchise is that the franchisor has control over certain aspects of the business, including menu offerings and equipment requirements. In this case, the Martin family must purchase new equipment to offer the new blended shakes, as dictated by the franchisor's menu requirements. This is an example of a trade-off where the franchisee must comply with the franchisor's requirements in order to take advantage of the benefits of owning a franchise.

Question 15

What is the most common source of small business financing?

Accepted Answer

Personal funds, family, and friends are often the most common source of small business financing as it allows for flexible terms and typically does not require the same level of collateral or creditworthiness as traditional bank lending. Angel investors and venture capital may be options for some businesses, but they are generally only available to those with high-growth potential or significant market traction. Bank lending may also be an option for established businesses, but can be difficult for new or unproven ventures.

Question 16

Tim owns a McDonald's franchise that is having some troubles. Where is Tim most likely to go for advice and guidance?

Accepted Answer

The franchisor is the best choice for advice and guidance as they have a vested interest in the success of the franchise and can provide specialized support and resources. The Better Business Bureau and Chamber of Commerce may provide some general guidance, but may not have specific expertise in the fast food industry. Restaurant consultants may be helpful, but they may also be expensive and not have the same level of understanding of the McDonald's franchise system.

Question 17

Which of the following is NOT a Canadian resource that helps entrepreneurs launch a business?

Accepted Answer

QuickStarter is not a Canadian resource that helps entrepreneurs launch a business. Futurpreneur Canada, Business Development Bank of Canada, and Canada Small Business Financing Program are all well-known resources in Canada that provide support and funding for entrepreneurs to start and grow their businesses.

Question 18

Daniella owns a 7-Eleven franchise. What is the primary disadvantage of owning a franchise for Daniella?

Accepted Answer

The primary disadvantage of owning a franchise is that the franchise dictates every aspect of the business, including products, pricing, and marketing strategies. This limits the owner's ability to make their own decisions and be creative in improving operations.

Question 19

Zhang's taffy manufacturing company has grown slowly but steadily over the past five years. She now would like to expand by purchasing new equipment. What is her most likely source of funding?

Accepted Answer

Bank lending is the most likely source of funding for a small business that is looking to expand slowly and steadily. Joint ventures and venture capital are more suitable for high-growth startups, while public stock offerings are typically reserved for larger, established companies.

Question 20

Jean is about to purchase the franchise rights for a fitness facility. What is her key reservation about pursuing a franchise as opposed to opening her own gym from scratch?

Accepted Answer

Jean's key reservation about pursuing a franchise is that she must pay a franchise fee to get started, along with a certain percentage of profits. This cost may be higher than starting her own gym from scratch.

Quiz 5: Considering Small Business Entrepreneurship and Franchises