Question 1

Why is it important for a new franchisee to follow the business plan detailed in the operations manual?

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Question 2

What options are available to the aspiring franchisee to assist in the evaluation of a franchising opportunity?

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Question 3

Match the term with its definition.
-To sell another franchise location within the market area of an existing franchise

Accepted Answer

Encroachment occurs when a new franchise location is sold within the market area of an existing franchise, potentially impacting the existing franchise's sales and market share.

Question 4

Compare and contrast the functions of a master licensee and area developer.

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Question 5

Because the relationship between franchisor and franchisee is similar to a marriage, it is important that the prospective franchisee investigate the opportunity thoroughly. What questions should a prospective franchisee ask to aid in assessing the franchise?

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Question 6

Define the terms franchising, franchisor, and franchisee. Apply these terms to McDonald's or another franchise example.

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Question 7

Identify and discuss some of the negative aspects associated with franchises.

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Question 8

Match the term with its definition.
-A franchise arrangement whereby the franchisee obtains an entire marketing, management system, and supply geared to entrepreneurs

Accepted Answer

Business format franchising entails the franchisor providing the franchisee with a comprehensive marketing, management system, and supply geared towards entrepreneurs.

Answer: H 
 A master licensee is an individual or entity that acquires the right to sub-franchise within a given territory.

Answer: I 
 Multiple-unit ownership refers to an individual or entity owning and operating more than one franchise location.

Question 9

Which of the following factors is a nonquantitative factor in valuing a business?

Accepted Answer

Future community development is a nonquantitative factor because it is based on subjective opinions and cannot be measured in numerical terms. The other options (size of buildings, number of employees, and employee salaries) are all quantitative factors that can be measured and analyzed using numerical data.

Question 10

Discuss the advantages of buying a franchise.

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Question 11

The purchase price of a business is determined by negotiation between _____ and _____

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The purchase price of a business is determined by negotiation between the buyer and the seller. The lender may be involved in the process if the buyer is obtaining financing, but their role is not to negotiate the purchase price. A broker may also be involved, but their role is to facilitate the transaction rather than negotiate the price.

Question 12

There are numerous techniques used for valuing a company, but they can be grouped into three basic methods. Which of the following is NOT one of those methods?

Accepted Answer

The three basic methods for valuing a company are market-based, asset-based, and cash flow-based. Expense-based valuation is not a recognized method for valuing a company.

Question 13

When Konrad purchased his business, he purchased it as a total entity. As a result,

Accepted Answer

When Konrad purchased the business as a total entity, he assumed responsibility for all outstanding debts incurred by the business. This is a common feature of purchasing a business as a whole rather than just its assets. The seller may still be responsible for outstanding debt in some cases, but it would typically be negotiated as part of the purchase agreement. Konrad would also receive all of the business's assets, including its real estate, as part of the purchase.

Question 14

Match the term with its definition.
-Bringing two or more franchise brands together within a single enterprise

Accepted Answer

Co-branding is the process of bringing two or more franchise brands together within a single enterprise.

Answer: C
 Business format franchising is a type of franchising in which the franchisor provides the franchisee with a complete business format, including training, support, and operational guidelines.

Answer: H
 A master licensee is a person or company that is granted the exclusive right to franchise a particular territory or geographical area.

Answer: I
 Multiple-unit ownership refers to a franchisee owning and operating several franchised units within a particular franchise system.

Question 15

Jasper is evaluating a business for possible purchase. He needs to know what a fair offering price should be. One way to do this would be to

Accepted Answer

Appraising the value of the assets of the business provides a tangible basis for determining a fair offering price, as it reflects the actual worth of the business's physical and intangible assets.

Question 16

Leonard and the seller have agreed to a price for a business. Leonard cannot pay cash for the entire purchase price, so he applied for a bank loan. The bank is likely to

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Question 17

Marvin is selling his business as a total entity. The buyer has offered a very large down payment, but Marvin would prefer a lower down payment and a longer repayment period. Which of the following is the most likely reason for this?

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Question 18

What is due diligence? What are some of the steps involved in the due diligence process?

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Question 19

Union contracts are among the many _____ factors in valuing a business.

Accepted Answer

Union contracts cannot be quantified in monetary terms and are qualitative in nature, but they are still important factors to consider when valuing a business. Therefore, the best choice is C) nonquantitative.

Question 20

List and describe the cost components of becoming a franchisee.

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Quiz 4: Franchises and Buyouts