53) In franchising, royalties are paid by the franchisee to the franchisor.
54) By definition, a franchise is owned by a semi-independent franchisee who pays a fee to a
franchiser in return for the right to sell the franchised goods or services.
55) In a franchise arrangement, the franchiser controls the distribution methods of the business
venture.
56) Trade name franchising involves licensing the rights to sell specific products under the
manufacturer’s brand name.
57) The type of franchising growing fastest is product distribution franchising.
58) Pure franchising occurs when the franchisee purchases only the right to become identified
with the franchiser’s trade name.
59) Pure franchising involves the right to use all the elements of a fully integrated business
operation.
60) Franchising benefits the franchisor by providing a quick way to expand the distribution
system and a way to grow without the cost and effort to develop managers internally.
61) As with most franchises, the key to H&R Block’s success is the standardization of their
product, processes, etc.
62) McDonald’s relies almost exclusively on the trade name type of franchising.
63) When a franchisee buys a franchise, he/she is purchasing the expertise and the business
experience of the franchisor.
64) The basic and first question an entrepreneur should ask him/herself before jumping into a
franchise is, “How much is this going to cost me?”
65) Quality is so important in franchising that most franchisers retain the right to terminate the
franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.
66) Most franchisers provide extensive financial help like loans and low-rate financing for their
franchises.
67) Buying a franchise prevents an entrepreneur from making many mistakes and avoids the
most inefficient type of learning—trial and error.
68) According to experts, the most important factor in franchising is location.
69) Most franchisors do not offer franchisees territorial protection, denying them the right to
exclusive distribution of the brand name in a particular geographic area.
70) The failure rate for franchises is well below that for other types of new businesses.
71) By signing the franchise contract, a franchisee typically surrenders some freedom and
autonomy in operating his/her business.
72) The only fee that franchisers can collect from franchisees is a one-time franchise fee paid at
the outset of the relationship.
73) In addition to other fees, franchisees must also pay royalties but only on net profits—no
profits, no royalties.
74) In many franchises, strict uniformity is the rule rather than the exception.
75) Franchisors can require franchisees to purchase materials and supplies only from approved
suppliers.
76) Franchisees generally sell only those products or services that the franchiser has approved
but may sell complementary products as long as they aren’t a second competing franchise.
77) Territorial encroachment is becoming a hotly contested issue as franchisers have nearly
exhausted prime locations for franchises.
78) Independent entrepreneurs with a “go-my-own-way” attitude are ideally suited for becoming
franchisees.
79) It is important for potential entrepreneurs to have extensive experience in the business in
which they are buying a franchise.
80) The FTC Trade Regulation Rule applies to all franchisors in all states regardless of state
disclosure laws.
81) If a franchisor encourages you to sign without reading the agreement, or discourages you
from “spending the money on an attorney,” this is a warning sign that the franchiser might be
dishonest.
82) By the 1920s, franchising was rife with fraudulent practitioners.
83) According to the Trade Regulation Rule, every franchisor must provide detailed information
on their operations at the first personal contact, or at least 14 days before a franchise contract is
signed.
84) The FTC verifies the accuracy of the franchise disclosure information required by the Trade
Regulation Rule.
85) One of the best ways for an entrepreneur to evaluate a potential franchiser is to interview
several franchise owners who have been in business at least one year.
86) Do not heed any information gathered from past franchisees, because they will distort the
reasons why they left the franchise.
87) Most often, disputes over a franchise contract arise after the agreement is in force.
88) The franchise contract defines the rights and the obligations of both parties and sets the
guidelines which govern the franchise relationship.
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.
90) One of the most litigated subjects of a franchise agreement is the termination of the contract
by either party.
91) Franchisors are obligated to renew a franchisee’s contract unless there has been malfeasance
on the part of the franchise.
92) In most cases, a franchisee does not have to get the franchisor’s approval to sell the franchise
to a third party.
93) Franchising, as a method of conducting business, has declined in importance in the past five
years in international markets.
94) The primary market for U.S. franchisors is Europe.
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.
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.
97) A master franchise gives the franchisee the right to combine two distinct franchises under
one roof.
98) When Wal-Mart began having McDonald’s restaurants share their retail space they were
exercising master franchising.
99) A significant growth area in franchising is providing time-saving services to baby boomers.
100) To make a successful franchise operation, an entrepreneur’s business model must be
replicable.
101) A master franchise is called a piggyback franchise.
102) Typically, because the franchisor’s attorney prepares franchise contracts, the provision
favors the franchisee.
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.
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.
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.
106) A poor image for the entire franchise could result from some franchisees using inferior
products to cut costs.
107) In most cases, startup costs for franchises often do not include any additional fees.
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.
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.
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.
111) Explain the benefits of franchising to the franchisee.
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.
113) What characteristics do franchisees look for in a “good franchise”?
114) What is the Franchise Disclosure Document? Offer several examples of what type of
information is required in the FDD.
115) What clues should you look for that should arouse your suspicions regarding the honesty
and legitimacy of a franchise? Identify at least eight.
116) Outline the process of buying a franchise, naming and briefly explaining each step you
should go through.
117) Discuss franchise contracts covering their current state, factors in their termination,
renewal, and transfer, and what the most common dispute tends to be.
118) Describe the key trends that will affect franchising over the next decade.