Question 1

The Federal Trade Commission does not provide information on franchise success.

Accepted Answer

The Federal Trade Commission (FTC) provides information on franchising, including the risks and rewards, which indirectly can inform on franchise success. They require franchisors to provide a Franchise Disclosure Document (FDD) to potential franchisees, which includes information about the franchise's legal, financial, and operational history that can help assess its success.

Question 2

In purchasing an existing business, the first question should be: "Why are you selling?"

Accepted Answer

Understanding the seller's motivation for selling the business can provide crucial insights into potential challenges or opportunities associated with the business, helping the buyer make an informed decision.

Question 3

In negotiating a deal to purchase an existing business, it is possible to request that the seller retain a minority interest in the firm.

Accepted Answer

This is a common practice in business acquisitions, where the buyer may request the seller to retain a minority interest to ensure continuity, leverage the seller's expertise, or provide additional assurance about the value of the business.

Question 4

Franchisees have the option of using the logo and symbols of the franchisor.

Accepted Answer

The answer of Franchisees have the option of using the...

Question 5

Much franchise litigation has arisen over franchising fees.

Accepted Answer

The answer of Much franchise litigation has arisen over franchising...

Question 6

It is always important that you weigh advantages against disadvantages in purchasing a franchise.

Accepted Answer

Weighing advantages against disadvantages is crucial in purchasing a franchise to make an informed decision, considering factors like initial costs, ongoing royalties, brand recognition, and operational support versus limitations on creativity and potential financial risks.

Question 7

The terms upside gain and downside loss refer to the profits the business can make and the losses it can suffer.

Accepted Answer

Upside gain refers to the potential profit or positive returns a business can achieve, while downside loss refers to the potential losses or negative financial impacts a business can face.

Question 8

The elimination of time and effort associated with starting a company is an advantage of acquiring an ongoing venture.

Accepted Answer

Acquiring an ongoing venture eliminates the time and effort required to start a company from scratch, including tasks such as developing a business plan, establishing operations, and building a customer base.

Question 9

Entrepreneurs who exploit a radical new technology to provide a product and radically disrupt the market through the creation of a new product space represent the highest level of innovation "newness" relative to other alternatives.

Accepted Answer

Entrepreneurs who exploit radical new technology to create products that disrupt the market by establishing a new product space indeed represent the highest level of innovation "newness." This is because they are not just making incremental improvements to existing products or services but are introducing something entirely new that can change consumer behaviors, create new industries, and redefine market dynamics.

Question 10

The prospective investor should obtain as much information as possible on the franchisor.

Accepted Answer

A prospective investor should gather comprehensive information about the franchisor to assess the franchise's viability, understand the business model, evaluate support and training systems, and make an informed investment decision.

Question 11

Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying an existing one, is that the franchisor will usually provide both training and guidance to the franchisee.

Accepted Answer

Franchisors often provide comprehensive training and ongoing support to franchisees, which can include operational procedures, marketing strategies, and financial management, making it a significant advantage for those new to the business world.

Question 12

The most important area to examine prior to purchasing a business is company profitability.

Accepted Answer

Examining company profitability is crucial as it indicates the business's ability to generate income and sustain operations, impacting the investment's potential return.

Question 13

The actual cost of "opening the doors" of a franchise establishment can be more than $200,000.

Accepted Answer

Many franchises require an initial investment of more than $200,000 to cover costs such as franchise fees, inventory, equipment, and other startup expenses.

Question 14

Sales records are of very little value to a buyer in evaluating a company's worth.

Accepted Answer

Sales records are crucial for a buyer in evaluating a company's worth as they provide insight into the company's revenue, market demand for its products or services, and growth potential.

Question 15

When purchasing an existing business, the prospective owner should conduct an assessment of the business's current group of employees.

Accepted Answer

Conducting an assessment of the current group of employees is essential for understanding the skills, strengths, and potential gaps within the workforce, which can impact the future success of the business.

Question 16

It is not uncommon for a buyer to be faced with a franchise fee of $250,000 to $1,000,000.

Accepted Answer

The answer of It is not uncommon for a buyer...

Question 17

Business brokers specialize in business opportunities and can provide leads and assistance in finding a venture for sale.

Accepted Answer

Business brokers are professionals who specialize in assisting buyers and sellers in the transfer of business ownership. They can provide leads on businesses for sale and offer assistance throughout the buying process.

Question 18

Uniqueness in a product or service can be demonstrated through a new-new approach or a new-old approach.

Accepted Answer

A new-new approach involves introducing a product or service that is entirely innovative, while a new-old approach involves adding unique features or improvements to existing products or services, both demonstrating uniqueness.

Question 19

Generally, the larger and more successful the franchisor, the greater the franchise fee that is charged.

Accepted Answer

Larger and more successful franchisors often charge higher franchise fees due to their established brand recognition, proven business model, and the comprehensive support and training they provide to franchisees.

Question 20

The way to approach a new business venture is to design a good or service that is unique.

Accepted Answer

A unique good or service can give a business a competitive advantage and help it stand out in the market.

Quiz 7: Pathways to Entrepreneurial Ventures