43.
Lack of an established product line does not typically stop a person from starting a new
business.
44.
One should buy an existing business even if the physical facilities of the firm are old or
obsolete.
45.
Even if an established or an existing business is in a desirable location, it is not a good
idea to buy it.
46.
An advantage of buying a franchise is that it already has many of the requirements for
success.
47.
In the context of small businesses, franchises tend to fail because they lack sufficient
funds to cover all needs.
48.
In the context of small businesses, franchises tend to fail because of unsuccessful
marketing.
49.
One way to help avoid franchise scams is to carefully review the franchiser’s disclosure
document.
50.
A franchisee owns a franchise’s name and distinctive elements and licenses others to sell
its products.
51.
Product and trademark franchising is usually observed in the restaurant industry.
52.
A franchiser exercises complete control over a franchisee’s business operations.
53.
The industry group with the largest volume of sales in a business format franchising is
automobile and truck dealerships.
54.
A disadvantage of franchising is the voluminous paperwork needed to provide disclosure
documents to potential franchisees.
55.
Due diligence is the concept that two or more people, working together in a coordinated
way, can accomplish more than the sum of their independent efforts.
56.
The disclosure agreement is a document that provides information on 20 items required by
the Federal Trade Commission.
57.
In the context of franchising, a disclosure statement provides demographic information to
the Federal Trade Commission.
58.
A problem area faced by franchisees is the high price of supplies that must be bought
from the franchiser.
59.
In the context of franchising, the success of fast food restaurants is related to the
increasing number of women working outside the home.
60.
Combination franchising is the ideal arrangement for big-name franchise operations to
avoid cultural clashes.
5-36
61.
Some franchisers prefer franchisees who own a large number of franchise outlets because
it speeds their growth.
62.
Small businesses in the United States are moving away from synergy as they are trying to
reengineer themselves.
Essay Questions
63.
How would a potential entrepreneur use market research to obtain information about the
market?
64.
What are the three things that a potential entrepreneur should follow when estimating
sales and market share?
65.
What are the reasons for starting a new business and for not starting a new business?
66.
What are the advantages and disadvantages of purchasing an existing small business?
67.
What are the benefits and drawbacks of buying a franchise?
68.
What is franchising?
69.
Describe the two types of franchising systems.
70.
Define the terms franchisee fees and royalty fees.
71.
What is a disclosure statement?
72.
Describe some industries in the United States where franchising is expected to grow.