86) Do not heed any information gathered from past franchisees, because they will distort the
reasons why they left the franchise.
Topic: The Right Way to Buy a Franchise
AACSB: Analytic Skills
87) Most often, disputes over a franchise contract arise after the agreement is in force.
Topic: Franchise Contracts
AACSB: Analytic Skills
88) The franchise contract defines the rights and the obligations of both parties and sets the
guidelines which govern the franchise relationship.
Topic: Franchise Contracts
AACSB: Analytic Skills
89) Having an attorney review and evaluate a franchise contract really is unnecessary since the
FTC requires all franchisers to offer a “standard” franchise contract.
Topic: Franchise Contracts
AACSB: Analytic Skills
90) One of the most litigated subjects of a franchise agreement is the termination of the contract
by either party.
Topic: Franchise Contracts
AACSB: Analytic Skills
91) Franchisors are obligated to renew a franchisee’s contract unless there has been malfeasance
on the part of the franchise.
Topic: Franchise Contracts
AACSB: Analytic Skills
92) In most cases, a franchisee does not have to get the franchisor’s approval to sell the franchise
to a third party.
Topic: Franchise Contracts
AACSB: Analytic Skills
19
93) Franchising, as a method of conducting business, has declined in importance in the past five
years in international markets.
Topic: Trends in Franchising
AACSB: Analytic Skills
94) The primary market for U.S. franchisors is Europe.
Topic: Trends in Franchising
AACSB: Analytic Skills
95) Nancy has owned her own hair salon for ten years. She’s recently signed an agreement with
Budget Cutters to become one of their outlets. This is an example of conversion franchising.
Topic: Trends in Franchising
AACSB: Analytic Skills
96) A multi-unit franchise gives the franchisee the right to open more than one franchise outlet in
a territory within a specific time frame.
Topic: Trends in Franchising
AACSB: Reflective Thinking
97) A master franchise gives the franchisee the right to combine two distinct franchises under
one roof.
Topic: Trends in Franchising
AACSB: Analytic Skills
98) When Wal-Mart began having McDonald’s restaurants share their retail space they were
exercising master franchising.
Topic: Trends in Franchising
AACSB: Analytic Skills
99) A significant growth area in franchising is providing time-saving services to baby boomers.
Topic: Trends in Franchising
AACSB: Reflective Thinking
20
100) To make a successful franchise operation, an entrepreneur’s business model must be
replicable.
Topic: Franchising as a Growth Strategy
AACSB: Analytic Skills
101) A master franchise is called a piggyback franchise.
Topic: Trends in Franchising
AACSB: Analytic Skills
102) Typically, because the franchisor’s attorney prepares franchise contracts, the provision
favors the franchisee.
Topic: Franchise Contracts
AACSB: Analytic Skills
103) The Federal Trade Commission (FTC) enacted the Trade Regulation Rule, requiring all
franchisors to disclose detailed information on their operations at the first personal meeting or at
least ten days before a franchise contract is signed or any money is paid.
Topic: Franchising and the Law
AACSB: Analytic Skills
104) The law requires franchisors to register a Franchise Disclosure Document (FDD) and
deliver a copy to prospective franchisees after the sale of a franchise.
Topic: Franchising and the Law
AACSB: Analytic Skills
105) When franchisees purchase their franchises and sign the contract, they agree to sell the
franchisor’s product or service by following its prescribed formula.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
21
106) A poor image for the entire franchise could result from some franchisees using inferior
products to cut costs.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
107) In most cases, startup costs for franchises often do not include any additional fees.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
108) A significant advantage a franchisee has over the independent small business owner is
participation in the franchisor’s centralized and large-volume buying power.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
109) Training programs often involve both classroom and on-site instruction to teach franchisees
the basic operations of the business —from producing and selling the goods or services to
purchasing raw materials and completing paperwork.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
110) Franchising is an important part of the U.S. economy. Briefly explain its importance, define
franchising, and identify the three basic types of franchises.
Topic: Types of Franchising
AACSB: Reflective Thinking
22
111) Explain the benefits of franchising to the franchisee.
Topic: Benefits of Buying a Franchise
AACSB: Analytic Skills
112) Although franchising is the fastest growing segment of small business, it has drawbacks.
Name and explain at least five drawbacks to franchising from the franchisee’s perspective.
Topic: Drawbacks of Buying a Franchise
AACSB: Analytic Skills
113) What characteristics do franchisees look for in a “good franchise”?
Topic: The Right Way to Buy a Franchise
AACSB: Reflective Thinking
114) What is the Franchise Disclosure Document? Offer several examples of what type of
information is required in the FDD.
Topic: Franchising and the Law
AACSB: Analytic Skills
23
115) What clues should you look for that should arouse your suspicions regarding the honesty
and legitimacy of a franchise? Identify at least eight.
Topic: The Right Way to Buy a Franchise
116) Outline the process of buying a franchise, naming and briefly explaining each step you
should go through.
Topic: The Right Way to Buy a Franchise
24
117) Discuss franchise contracts covering their current state, factors in their termination,
renewal, and transfer, and what the most common dispute tends to be.
Topic: Franchise Contracts
AACSB: Analytic Skills
118) Describe the key trends that will affect franchising over the next decade.
Topic: Trends in Franchising
AACSB: Reflective Thinking
25