Quiz 5: Franchising

A disadvantage of the direct ownership system used by early manufacturers in the 1830s like McCormick and Singer was the lack of direct control and control over quality levels.

Franchising dominates the Quick Service Restaurant segment of the U.S.economy.

McCormick and Singer were two of the first franchises in America during the 1800s.

Franchised businesses directly produce almost 6 million jobs.

Nearly 50 percent of all U.S.businesses are franchised.

Automobile manufacturers have franchisees.

Making products available to consumers through exclusive dealers in a specific geographic region is the purpose of product-distribution franchising.

Product-distribution franchising is commonly used in fast-food restaurants and lodging establishments,such as hotel and motel chains.

In comparison to business-format franchising,product-distribution franchising is more of a turnkey approach to franchising.

The biggest advantage of franchising for a franchisee is the marketing expertise that is provided.

Some franchisors prefer that their franchisees not have experience in the particular field of the franchise.

Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

Franchisors seldom provide financial resources for startup and working capital for inventory.

The primary drawback of franchising to the franchisee is that you must give up some control,some decision-making power,and some freedom.

One advantage of franchising to the franchisee is that it is relatively easy to terminate a franchise agreement if things are not going well.

If a franchisee feels that a product,promotion,or policy may not be appropriate for his/her area,the franchisee can decide to not participate.

A right of first denial states that a franchisee must decline continuing a franchise agreement before the franchisor can offer the franchise to someone else.

From the perspective of the franchisor,one of the biggest advantages of offering franchises is the expansion of the business happening much faster than if the franchisor were in business alone.

Franchisors often have several sources of income built into franchise agreements,including franchise fees,operating revenue percentages,and product/supplies revenues.

One way in which franchisors have dealt with the complexity of serving differing customer tastes covering large geographic areas is through company owned franchises.

Social media "...can give,it can also take away" according to "Denny's Social Media Life" on Page 127 of the text.Denny's made positive use of Twitter but encountered negative impact from customer use of Facebook.

The American Franchise Association is a trade association that provides information and services about franchising.

When individuals have a general idea of the franchise that they are interested in,they should contact the company and ask for a copy of its disclosure statement.

A good question to ask concerning a potential franchise purchase is whether or not the franchise gives exclusive territory for the length of the agreement.

Because franchisors have lawyers look over the franchise agreement,it is not necessary for a franchisee to pay a lawyer to do the same thing.

A potential franchisee may receive only partial use of trademarks,trade names,logos,and other symbols as detailed in the disclosure statement.

Royalty fees that are paid to the franchisor are usually calculated as a percentage of gross profits.

If an advertising fee is charged to a franchisee,the franchisor is required by law to spend a percentage of the collected fees in the franchisee's market.

Franchise agreements are currently written in simple enough language that a lawyer need not be contacted before signing a franchise agreement.

Over the past 25 years,the wording within disclosure statements has gradually become more "legalese" and complex.

The issue of exclusive territory is the subject of much controversy in the franchising world.

U.S.companies facing increased domestic competition are turning to foreign markets such as Canada and Mexico for expansion opportunities.

When expanding abroad,franchisors must be sensitive to the demographic,cultural,and legal climates of the host country.

With the passage of the North American Free Trade Agreement (NAFTA),franchise opportunities in South America have become a dominant force in the retailing sector.

The process of gathering and verifying the accuracy of information included in the franchise agreement and all other information provided by the franchisor is called A) Deductive reasoning B) Preemptory investigation C) Due diligence D) Market research

Through the franchise agreement,the ____ gains the benefit of the parent company's expertise,experience,management systems,marketing,and financial help. A) Franchisor B) Franchisee C) Leaser D) Lessee

A contractual license to operate an individually owned business as a part of a larger chain is known as a/an A) Franchise B) Small business contract C) Chain contract D) Import contract

The parent company that develops a product or business process and sells the rights is known as the A) Franchisor B) Franchisee C) Company of origin D) Opening company

The small business person who purchases the franchise in order to sell the product or service is known as the A) Franchisor B) Franchisee C) Company of origin D) Opening company

Franchises have experienced growth since the 1950s,although they have existed since the A) Late 1700s B) Early 1800s C) Late 1800s D) Early 1900s

In 2010,which famous franchise business took the top spot on the Entrepreneur Franchise 500 list? A) Starbucks B) McDonalds C) Subway D) Burger King

Samuel has decided to buy a small pretzel shop,where he will be expected to pay fees and royalties for exclusive rights to local distribution of pretzels made at the shop.Samuel can best be described as a/an A) Franchisor B) Franchisee C) CEO D) Social entrepreneur

According to the 2014 Franchise Business Economic Outlook,in total,franchised businesses support jobs that produce GDP of ______ billion. A) 293 B) 393 C) 493 D) 593

____ and ____ were two of the first businesspeople to use exclusive agents,which laid the ground for today's franchising. A) Ford,Hoover B) John Deere,Macy's C) McDonald's,Hilton D) McCormick,Singer

Today,franchising is represented in almost every industry,with more than ____ U.S.businesses being franchises. A) 225,000 B) 770,000 C) 2.5 million D) 25 million

Franchised businesses directly produce almost ____ jobs. A) 1 million B) 32 million C) 5 million D) 10 million

Product-distribution franchising involves licensing the use of its A) Trade name B) Business format C) Turnkey D) Dealership

Making products available to consumers in a specific geographic region is the purpose of ____ franchising. A) Product-distribution B) Business format C) Turnkey D) Dealership

A type of franchise in which the franchisee agrees to purchase the products of the franchisor or use the franchisor's name is called A) Product-distribution franchise B) Business-format franchise C) Dealership franchise D) Logo franchise

Product franchises and business-format franchises are used by all but which of the following groups? A) Producers B) Wholesalers C) Retailers D) Manufacturers

A type of franchise in which the franchisee adopts the franchisor's entire method of operation is known as A) Product franchising B) Trade-name franchising C) Business-format franchising D) Dealership franchising

Business-format franchising is commonly used in which of the following? A) Gasoline stations B) Soft-drink bottlers C) Car dealerships D) Fast-food restaurants and lodging establishments

Tom has opened a Ford dealership,where he purchases vehicles from the Ford Company and has full use of the Ford trade name,brand names,and logos to promote the dealership.Tom has engaged in what type of franchising? A) Product-distribution B) Service-distribution C) Manufacturing-format franchising D) Business-plan franchising

While traveling across country over the summer,Gwen and Audrey stayed in well-known,franchised accommodations rather than opting for independent,unknown motels.This example demonstrates which advantage to franchisees? A) Efficiency B) Financial assistance C) Professional guidance D) Proven product

An advantage of franchising for the franchisee would be all but which of the following? A) Product readiness B) Marketing experience C) Efficiency D) Cost of the franchise

The greatest benefit to the franchisee is which of the following? A) Proven product B) Marketing expertise C) Professional guidance D) Efficiency

Providing a source of managerial and technical assistance is an advantage to the franchisee that might not be available to an independent business owner.This is called A) An opportunity to learn B) Market expertise C) Professional guidance D) Controlled expansion

Technical assistance available to franchisees could include all but which of the following? A) Store layout and design B) Location analysis C) Purchasing assistance D) Advertising campaigns

Saving money on inventory needs,equipment,and supplies is an advantage for the franchisee that is called A) Recognized standards B) Marketing expertise C) Efficiency D) Professional guidance

A McDonald's hamburger that tastes the same at any location in the world is an example of which of the following benefits to the franchisee? A) Recognized standards B) Marketing expertise C) Efficiency D) Professional guidance

____ franchisors will charge a fee and/or a specified percentage of sales revenue. A) A few B) Some C) Most D) All

A problem with the cost of purchasing a franchise is that the franchisee is usually required to raise most of the capital A) Before beginning operations B) Within one month of beginning operations C) Within six months of beginning operations D) Within one year of beginning operations

Which of the following companies has the highest franchise fee? A) McDonalds B) Subway C) Jiffy Lube D) Gold's Gym

Because customers view franchises as an entire unit,which of the following can have a negative effect on a franchisee's business? A) Overdependence or unsatisfied expectations B) Risk of fraud or misunderstanding C) Problems of termination or transfer D) Poor performance of other franchisees

From the perspective of the ____,the biggest advantage is the expansion of distribution sources with limited equity investments. A) Customer B) Employee C) Franchisor D) Franchisee

Other franchises under the same franchisor can detrimentally affect a franchise by A) Tolerating substandard performance B) Opening a new franchise in another market C) Setting higher standards D) Not making a profit

A statement in the franchise agreement that states that the franchisee must decline to continue the agreement before the franchisor can offer the franchise to someone else is called a A) Right of discontinuance B) Privilege of rescission C) Right of first refusal D) Right of denial

An advantage to the franchisor is all but which of the following? A) Multiple sources of revenue B) Expansion with smaller capital investment C) Bulk purchasing D) Profit sharing

From the perspective of the franchisor,the biggest advantage of offering franchises is the A) Expansion with limited equity investments B) Multiple sources of revenue C) Level of control of expansion D) Bulk purchasing

Franchising may be the only viable way for which of the following to expand? A) Sole proprietorships B) Businesses with limited capital C) Businesses wishing to enter international markets D) Partnerships

A source of revenue that could be built into the franchise agreement might include all but which of the following? A) Franchise fee B) Percentage of gross operating revenues C) Revenue from selling necessary products and supplies to the franchisee D) Interest income

In comparison with expansion of a corporate chain,expanding via franchise can be accomplished with a/an ____ management structure. A) Simpler B) Equally complex C) Slightly more complex D) Highly complex

Which of the following can significantly reduce costs for a franchisee and thus increase profit margins? A) Controlled expansion B) Franchise fees C) Bulk purchasing D) Advertising costs

The biggest disadvantage to the franchisor is which of the following? A) Profit sharing B) Disputes with franchisees C) Loss of control D) Communication breakdowns

Which of the following is a way in which franchisors have adapted products to meet the changing needs of customers? A) Multiproduct shelving B) Corporate displays C) Establishing company-owned stores D) Family branding

Franchisors can achieve economies of scale as a result of which of these? A) Multiple sources of revenue B) Controlled expansion C) Motivated franchisees D) Bulk purchasing

Which of the following is the least likely cause of dispute between franchisees and franchisors? A) Payment of fees B) Types of products or services offered C) Expansion D) Hours of operation

The major trade association of franchising is the A) International Franchise Association B) American Franchise Association C) American Association of Franchises and Dealers D) Global Franchise Association

The International Franchise Association publishes ____ annually,which gives requirements,expectations,and assistance capabilities for each franchise. A) The Franchise Handbook B) Current Franchises in Business C) Potential Franchise Opportunities D) The Franchisee Guide to Selecting a Franchise

All of the following are questions that should be answered to determine whether franchising is the appropriate route to small business ownership except A) Are you prepared to give up some independence? B) Do you believe you have the skills to work smoothly with a franchisor? C) Are you ready to make a short-term commitment to working with a franchisor? D) Are you financially prepared to purchase the franchise?

The American Association of Franchisees and Dealers (AAFD)has developed a ____ as a code of ethical business conduct for franchised businesses. A) Franchisee Bill of Rights B) Franchisor Code of Conduct C) Franchisee Constitution D) Franchisor Disclosure Statement

A priceless source of information about a prospective franchise that cannot be obtained from trade associations or from the franchisor can come from which of the following? A) Legal records B) Current and former franchisees C) The franchisor D) Current customers

Franchisors are required by the ____ to provide disclosure statements to prospective or actual franchisees. A) North American Free Trade Agreement B) Uniform Commercial Code C) National Labor Relations Act D) Federal Trade Commission

Information that franchisors are required to provide to potential franchisees is contained in which of the following documents? A) Franchise agreement B) Purchasing contract C) Disclosure statement D) Profit-and-loss statement

Disclosure statements identify and provide information on ____ important items. A) 10 B) 20 C) 30 D) 40

Identification of risks,fees,benefits,and restrictions of operating a franchise would be included in the A) Disclosure statement B) Franchise agreement C) Franchise contract D) Purchase agreement

Alicia is considering opening a popular pizza franchise.Before she makes her final decision,she contacts the company and obtains a document that outlines the risks,fees,benefits,and restrictions of owning the franchise.This document is known as a A) Financial statement B) Contract C) Franchise agreement D) Disclosure statement

A disclosure statement should include a description of the lawsuits in which the franchisor and its officers,directors,and management personnel have been involved,also known as A) Litigation B) Justification C) Intellectual property D) Legal obligations

A complete statement of the basis for any earnings claims made to the franchisee is referred to as A) Exclusive territory B) Financial assistance C) Earning capacity D) Financial control

Whether a franchise is required to carry the full line of the franchisor's products or whether additional product lines can be added would fall under the ____ section of the disclosure statement. A) Purchase obligations B) Product or service restrictions C) Personal participation of franchisees D) Exclusive territory

Franchisees have recently alleged that the franchisor has overlapped franchise areas.This is a breach of A) Termination of the franchise agreement B) Due diligence C) The exclusive territory rights D) Franchise fees

In the section of the disclosure statement titled "Information about franchisees," the franchisor must provide the names and addresses of all franchisees located in which proximity to the prospective franchisee? A) City B) County C) State D) Region

The legal contract that binds both parties involved in the franchise is known as the A) Franchise agreement B) Disclosure statement C) Contract D) Business obligation

Some franchise agreements specifically require the franchisee to have a percentage of the total franchise fee from which of the following? A) A venture capitalist B) A nonborrowed source C) An accredited bank D) The Small Business Administration (SBA)

All but which of the following should be thoroughly understood before the franchise agreement is signed? A) How the agreement can be terminated or renewed B) What fees have to be paid C) The rights to exclusive territory D) All new products the franchisor will develop for the next year

The one-time payment made to become a franchisee is called a/an A) Franchise agreement B) Franchise fee C) Royalty fee D) Initial investment fee

The ongoing payments that franchisees pay to franchisors⎯which is usually a percentage of gross sales⎯is known as a/an A) Franchise agreement B) Franchise fee C) Royalty fee D) Initial investment fee

Royalty fees are calculated as a percentage of A) Gross sales B) Gross profit C) Net profit D) Pretax revenue

Before Walter can officially become a franchisee of an auto repair shop,he must first sign a document that defines the precise,detailed conditions of the legal relationship between the franchisee and the franchisor.This document is referred to as the A) Forced contract B) Franchise agreement C) Disclosure statement D) Due diligence statement

Before she could open her franchised hair salon,Lori knew she had to pay a one-time fee of $10,000 to the franchisor.This one-time fee is known as the A) Franchise fee B) Industry fee C) Royalty fee D) Due diligence fee

Most franchise contracts run A) Indefinitely B) From 1 to 5 years C) From 15 to 20 years D) From 5 to 15 years

Before signing a franchise agreement,a franchisee should make sure that the franchisor must show ____ to terminate the contract A) Real cause B) Due diligence C) Good cause D) Cause clause

Which of the following sections in the franchise agreement contains information on rights of first refusal,advertising restrictions,and performance quotas? A) Termination of the franchise agreement B) Terms and renewal of the agreement C) Exclusive territory D) Franchise,advertising,and royalty fees

Overseas franchising has become a major activity for U.S.companies facing increased A) Taxes B) Domestic competition C) Regulation D) Domestic lawsuits

Because it is close in proximity and its markets are similar,____ is an increasingly attractive market for U.S.franchises. A) France B) Canada C) Cuba D) Great Britain

In ____,federal law does not seek to regulate the relationship between franchisor and franchisee,but the franchisee must receive full information at least 10 days before execution of the franchise agreement. A) Russia B) China C) Brazil D) France

In Scenario 5-1 above,all but which of the following would be a major advantage for Connie in choosing to purchase a franchise as opposed to opening her own business? A) Marketing expertise B) Managerial assistance C) Proven product D) The cost of the franchise

In Scenario 5-1 above,which of the following would be the major disadvantage for Connie in purchasing a franchise? A) Potential for business growth B) Restrictions on her freedom and creativity C) Marketing expertise D) Quality control standards

In Scenario 5-1 above,which of the following types of franchises is the bakery franchise? A) Product franchising B) Business-format franchising C) Service franchising D) Joint venture

In Scenario 5-1 above,which of the following advantages from the franchisor would benefit Connie the most? A) Quality product B) Efficiency C) Professional guidance D) An opportunity to learn

In Scenario 5-1 above,all but which of the following would be disadvantages for Connie if she chose to use franchising? A) Problems of termination or transfer B) Poor performance of other franchises C) The cost of the franchise D) Marketing expertise

Refer to Scenario 5-2.The document that she is carefully considering is the A) Franchise legal contract B) Franchise agreement C) Business contract D) Partnership agreement

In Scenario 5-2 above,as Connie is reading through the agreement,she sees that a percentage of her gross sales will be paid to the franchisor.These are called A) Franchise fees B) Royalty fees C) Advertising fees D) Operation fees

In Scenario 5-2 above,Connie is concerned that the bakery franchise not open other outlets within 10 miles of the mall.She is concerned about A) Termination of the franchise agreement B) Exclusive territory C) Terms and renewal of the agreement D) Mutual territory

In Scenario 5-2 above,after reading through the agreement,everything seems clear to Connie.Is there anyone else she should have read the agreement? A) Her friends at work B) Her CPA and lawyer C) Her friends and a lawyer D) Her friends and her CPA

In Scenario 5-2 above,the FTC requires all franchisors to provide which of the following for potential franchise owners? A) Statements of information B) Income statements C) Disclosure statements D) Franchise statements

Describe the two types of franchising systems,explain how they differ,and give an example of each.

List and describe three major advantages of franchising for the franchisee.

List and describe three major disadvantages to the franchisee when considering franchising.

After finding a franchise that a small business owner would consider purchasing,discuss three questions that should be asked.

Explain why overseas franchising has become a major activity for U.S.companies.

List at least three questions that individuals should ask themselves to determine whether franchising is the appropriate route to small business ownership.

When considering a franchise,list at least three questions that should be considered to analyze the market in which the franchise will be operating.