45) Which of the following is true of franchising?
A) A franchise is essentially an unpackaged business, where the policies, procedures, and buying
patterns have to be established prior to beginning operations.
B) The purchase of a well-honed, thoughtfully positioned franchise can dramatically decrease the
downside risk inherent in the process of starting a business.
C) There is no difference in the risk of buying a franchise and buying an existing business.
D) Franchising is viewed as a new business entrepreneur’s creation of a business from scratch.
46) When entering a new industry through the purchase of a franchise, a small business owner
should
A) examine the industry.
B) examine potential competitors.
C) examine position relative to other new franchises.
D) all of these.
47) An individual looking to buy a franchise should identify a franchisor that is the best potential
match in
A) support.
B) history.
C) expansion plans.
D) all of these.
48) A franchisor and franchisee relationship is governed by the
A) United Franchise Optimum Contract.
B) United Franchise Offering Clauses.
C) United Franchise Offering Circular.
D) United Franchise Offering Contract.
49) When you buy a franchise, you are buying
A) an established name.
B) the opportunity to operate under that name for a period of time.
C) a single store or the right to have multiple units.
D) all of these.
50) ________ is a broad area that encompasses such things as brochures, signs, logos, television
advertisements, newspaper advertisements, sales techniques, and internal business design.
A) Marketing information system
B) Decision support system
C) Accounting support
D) Marketing support
51) Which of the following documents specifies the information that must be provided to a
franchisee prior to his or her investment?
A) Uniform Franchise Offering Circular
B) Enterprise Bargaining Agreement
C) Bilateral Investment Treaty
D) Multilateral Agreement on Investment
52) Items covered in the Uniform Franchise Offering Circular include all of the following
EXCEPT
A) litigation.
B) bankruptcy.
C) investment requirements.
D) marketing goals.
53) The Uniform Franchise Offering Circular has ________ specified items.
A) 15
B) 18
C) 23
D) 28
54) Which of the following statements is true of a franchise process?
A) The founding of a franchise is quite different in form and method from creating a new business
from scratch.
B) A market analysis by a franchisor is the best available method to understand a market and to
organize franchise operations.
C) A significant up-front cash payment is necessary for making an initial fee payment by a
franchisee.
D) The entrepreneur can easily leave the franchisee business if he or she does not enjoy the
business venture.
55) A potential franchisee has to be ________ before receiving a complete Uniform Franchise
Offering Circular.
A) bonded
B) vetted
C) researched
D) interviewed
56) Negotiations between a franchisee and a franchisor should explore
A) up-front capital requirements.
B) financing arrangements.
C) continuing fees.
D) all of these.
57) Franchisors make decisions based on what is best for
A) franchisors.
B) franchisees.
C) the total business.
D) none of these.
58) Franchisors typically provide the
A) operational systems.
B) monitoring techniques to run the business.
C) both of these.
D) none of these.
59) Businesses that specialize in selling businesses are known as
A) business representatives.
B) business analysts.
C) real estate agents.
D) business brokers.
60) New Ventures Co., a consulting firm, follows attorneys, trade associations, and bankruptcy
filings in the United States to find businesses that can be bought. Then, they find prospective
entrepreneurs who are interested in buying these businesses and sell these businesses for a margin.
In this scenario, New Ventures Co. is a ________.
A) business representative
B) business analyst
C) business broker
D) research expert
61) During the transition period following the sale of an existing business, which of the following
tasks needs to be completed?
A) Meet and discuss the transition with every member of the current staff.
B) Spend significant time being visible in the new operation.
C) Implement new metrics.
D) All of these
62) Identify an accurate statement about buying an existing business.
A) Buying an existing business does not take as much planning and thought as starting a business
from scratch.
B) An entrepreneur has to discover the sources of cash flow after buying an existing business
because there is no established cash flow.
C) An existing business has the benefit of having an established set of processes.
D) There is no difference in the risk of buying a franchise compared to starting a business from
nothing but an idea.
63) Which of the following is NOT listed in the book as a good source of information for finding
an existing business to purchase?
A) Bankruptcy filings
B) Trade associations
C) Attorneys and CPA firms
D) Bankers
64) Which of the following is true of the risk involved in buying an existing business facing
bankruptcy?
A) It takes special knowledge and skills to conduct an effective turnaround.
B) The creditors of the previous owner ask for personal guarantee from a potential buyer and place
his or her personal assets at risk.
C) Customers usually boycott the new owner due to their loyalty to the previous owner.
D) It requires certain legal procedures and court appeals to layoff the existing pool of employees
under any conditions.
65) Which of the following should be accomplished by a new owner who purchased an existing
business?
A) He or she should make all significant changes in one day so as to alleviate any lingering
concerns by the employees.
B) He or she should devise layoff plans taking enough time so that he or she obtains the goodwill
of the employees.
C) He or she should ensure the former owner comes to the business every day for at least 30 days
following the sale.
D) He or she should wait for at least 6 months before informing customers and suppliers of the sale
of the business.
66) The cost of a business should include
A) a premium for past performance.
B) a premium for future performance.
C) a premium for current performance.
D) none of these.
67) In franchising, the ________ is the firm that originates the idea for a business and develops the
operational methods.
68) The ________ pays a fee to obtain a franchise from the franchisor.
69) The basic contract a franchisor provides to a franchisee is called a ________.
70) A(n) ________ usually contains clauses requiring the purchase of supplies from a franchisor,
the displaying of marketing material, and the payment of fees that are based upon the sales of a
branch operation.
71) A(n) ________ is a government-required document that clearly discloses aspects of the
relationship between a franchisor and a franchisee.
72) A very important commitment a franchisee demands from a franchisor is to limit the number of
________ within a specific radius of the new franchise.
73) A franchisor typically provides ________ through such things as brochures, signs, logos,
advertisements, and sales techniques.
74) A franchisor typically provides ________ to develop performance management programs,
quality control methods, forecasting, and purchasing of equipment, which are very valuable
services that act as guidelines rather than mandates in deciding on a franchise.
75) The typical time frame that a franchise agreement lasts is ________ years.
76) A business ________ specializes in selling businesses.
77) An existing business has an established ________ flow that the owner is offering to sell to a
buyer.
78) What does an individual receive on purchasing a franchise?
79) What are the differences between a franchisor and a franchisee?
80) List the four ways that a franchisor makes money.
81) Describe the ways in which a franchisor and a franchisee help each other.
82) When buying a franchise, what issues should a potential franchisee examine?
83) What rights does a franchisee receive in exchange for purchasing a franchise?
84) What can a potential franchisee learn from current franchisees when researching the purchase
of that franchise?
85) When buying a franchise, what are the specific areas that should be evaluated?
86) Why would an entrepreneur buy an existing business?