Chapter 05 Create, Buy, or Franchise a Small Business Answer Key
Multiple Choice Questions
1.
_____ is the process of finding a small—but profitable—demand for something and
producing a custom-made product for that market.
2.
John wants to start his own business. After doing some research, he has decided to
specialize in cleaning kitchens since most homemakers are not satisfied with the quality of
the service offered by the residential cleaning companies. This process of finding a
small—but profitable—demand for something and producing a custom-made product or
service is known as _____.
3.
Which of the following refers to a group of retired—but active—managers from all walks of
life who help people develop their business ideas?
4.
The website of the Federal Small Business Administration has a self-help program called
the _____, which helps prospective entrepreneurs focus on some of the factors they need
to consider before starting their own business.
5.
Which of the following is a good source of information through which prospective business
owners get help and advice?
your niche.
6.
_____ are private associations of local (or regional) business and professional people who
are familiar with an area’s needs.
7.
_____ is the system of gathering, recording, classifying, analyzing, and interpreting data
related to merchandising of goods and services.
8.
Prospective entrepreneurs can access data from _____ to obtain information on subjects
such as population, business, and housing.
9.
Which of the following statements is true of market research in the context of small
businesses?
10.
While working in a fast food outlet, Harold observed that most of the customers were
working in offices in the neighborhood. Sensing a profitable opportunity, he decided to
open a catering business. He offered to deliver lunch directly to the offices so that the
businesspeople would not have to interrupt their meetings to go out for lunch. In the
context of the above scenario, which of the following was the reason for Harold to start his
own business?
11.
Which of the following is a reason for starting a new business?
12.
Catherine, who loves dogs, wants to offer dog-walking services in her neighborhood. Her
research leads her to a small professional pet care store operating in the area, which she
decides to buy. Which of the following is a good reason for Catherine to buy the pet care
store?
13.
Jane, who wants to start her own business, considers buying an Internet café which is up
for sale in her neighborhood. However, Jane discovers that Internet connectivity tends to
be erratic in the store since she lives in a remote town and decides against it. Which of the
following is most likely the reason for Jane’s refusal to buy the business?
14.
Which of the following is a benefit of buying a franchise?
15.
Which of the following is a drawback of buying a franchise?
16.
In franchising, which of the following is a benefit to the franchisee?
17.
In a franchise, which of the following is an advantage for a franchiser?
18.
_____ is a marketing system based on a legal arrangement that permits one party to
conduct business as an individual owner while abiding by the terms and conditions set by
the second party.
19.
Which of the following statements is true of franchising?
20.
What does a franchiser do?
21.
Burger’s Inc. owns a number of fast food stores across the country. Ryan, who wants to
start his own business, decides to open a store under the Burger’s Inc. trademark. He has
to sell and market the fast food products according to the terms of the licensing
agreement. In this scenario, Ryan is a:
22.
Product and trademark franchising:
23.
Which type of franchising system grants the franchisee the right to market the product and
trademark and use a complete operating system?
24.
Which of the following is true of business format franchising?
25.
What is due diligence?
26.
A.
It is a fee paid to the franchiser at regular intervals of time.
It is a fee based on the percentage of a franchisee’s gross revenue.
It is a one-time fee paid to the franchiser.
D.
It is a continuous fee paid by the franchiser to the franchisee.
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Learning Objective: 05-06 Explain how to tell if a franchise is right for you.
Which of the following is true of a franchise fee?
27.
start-up fee.
C.
licensing fee.
D.
franchise fee.
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Difficulty: 1 Easy
Learning Objective: 05-06 Explain how to tell if a franchise is right for you.
The continuous fee paid by the franchisee to the franchiser based on a percentage of the
franchisee’s gross revenue is termed:
28.
Which document provides information to possible new franchisees on 20 items required by
the Federal Trade Commission?
A.
Business plan agreement
B.
Disclosure statement
C.
Marketing statement
D.
Buy-sell agreement
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Learning Objective: 05-06 Explain how to tell if a franchise is right for you.
29.
_____ is the concept that two or more people, working together in a coordinated way, can
accomplish more than the sum of their independent efforts.
30.
Which of the following is true of combination franchising?
31.
_____ is the most important professional assistance one needs before investing in a
franchise.
32.
The _____ in the United States has a code of ethics that covers a franchiser’s obligations
to its franchisees.
True / False Questions
33.
When a person wants to start a new business, the first step is to decide whether to start a
new business, buy an existing one, or buy a franchise.
34.
Planning to start one’s own business begins with searching for or identifying a good or
service to sell.
35.
Niche marketing is the systematic gathering, recording, and analyzing of data related to
the marketing of goods and services.
36.
Reintroducing an old product is a good business idea since customer tastes run in cycles.
37.
The Small Business Administration is a group of retired managers who help people
develop their business ideas.
38.
The Small Business Administration in the United States is a particularly effective source of
local information for prospective business owners because it is familiar with an area’s
needs.
39.
Small businesses never select one product niche because they usually have sufficient
resources to cover the whole market.
40.
The Service Corps of Retired Executives publishes many useful books on planning and
organizing small businesses.
41.
In a given market area, the fact that a high number of similar firms have gone out of
business usually signals market weakness.
42.
Small businesses must strive for low overhead, use no-frills assets, and look for better real
estate deals.