Franchising For Small Business Chapter 4 Exam Prep

Chapter 4- Franchising for Small Business

True/False

1. McDonalds and Dairy Queen are examples of family-controlled firms

Response: See Introduction

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. The largest franchisor globally in revenue is McDonalds

Response: See Introduction

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. In U.S., it is always very costly to buy a franchise business

Response: See 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Franchisors usually pay a fee or royalty to obtain the franchise rights

Response: See 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. One of the advantages of online franchising is that it involves high overhead costs

Response: See 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. McDonalds was the first franchisor in the United States

Response: See 4.1.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Previous business experience is required to start a franchise business

Response: See 4.1.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Under Trade Name Franchising, the franchisee has only the rights to use the franchisor’s trade name and/or trademarks

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Conversion Franchising is the most popular form of franchising in United States

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Coldstone Creamery is an example of a business-format franchising

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Conversion franchising gives the right to franchisee to adopt the way the franchisor does business

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Conversion franchising includes only the rights to use the franchisor’s trademarks

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Franchising is an uncommon mode of entrepreneurship in the United States

Response: See 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. In franchising, franchisees share the financial burden of the franchisor’s growth

Response: See section 4.2

Level: Medium

Learning Objective: Identify the advantages and disadvantages in franchising

1. Franchisor is responsible for day-to-day management of the franchisee

Response: See section 4.2.2

Level: Easy

Learning Objective: Identify the advantages and disadvantages in franchising

1. One of the ways to reduce misrepresentation by franchisors is to talk to existing established franchisees

Response: See section 4.2.2

Level: Easy

Learning Objective: Identify the advantages and disadvantages in franchising

1. Franchising is not regulated at state level

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. All states have registration laws that franchisors should carefully consider

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. Registration States are U.S. states that have laws governing the interaction between franchisors and franchisees

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. The Uniform Franchise Disclosure Document was previously known as the Uniform Franchise Offering Circular

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. The International Franchise Association (IFA) is the world’s largest membership organization for franchisors, franchisees and franchise suppliers

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. A good franchise agreement must have an exit clause

Response: See section 4.4.2

Level: Easy

Learning Objective: Decide whether franchising is a good option for you

1. The World Franchise Council (NFC) is a source for franchising information

Response: See section 4.4.2

Level: Easy

Learning Objective: Decide whether franchising is a good option for you

1. The franchise agreement is not a legal document

Response: See section 4.4.2

Level: Easy

Learning Objective: Decide whether franchising is a good option for you

1. Every franchisor is required to provide potential franchisee the business contact information of its current franchisees located in the same state

Response: See section 4.4.2

Level: Easy

Learning Objective: Decide whether franchising is a good option for you

Multiple Choice Questions

1. According to the text, which of the following is the world’s largest window cleaning franchise?
2. WHALES
3. ELEPHANT
4. FISH
5. SHARK

Response: See section SPOTLIGHT

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Franchising involves:
2. Takeover of an already active firm
3. A legal agreement that allows one business to be operated using the name and business procedures of another business that already exists
4. Running a family business
5. Starting a small business from scratch

Response: See section 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. In franchising, the parent company of the product, service, or method is known as :
2. Franchisee
3. Merging firm
4. Global firm
5. Franchisor

Response: See section 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. A company that pays fees and royalties for exclusive rights to local distribution of the product or service is called:
2. Franchisee
3. Merging firm
4. Global firm
5. Franchisor

Response: See section 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is NOT true about franchising?
2. Franchisee uses a brand name, trademark, and logo legally owned by the franchisor
3. Franchisee gets the legal right to engage sell or distribute goods or services
4. Franchisee uses a marketing plan or system offered by the franchisor
5. Franchisor has no control over franchisee

Response: See section 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is a leading market research firm that provides information on franchising?
2. Small business administration
3. Chamber of commerce
4. Franchise business review
5. Marketing business review

Response: See section 4.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is a drawback of running an online franchise system?
2. Low overhead costs
3. Flexible working hours
4. Tax benefits
5. Limited social interaction

Response: See section 4.1

Level: Medium

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is an advantage of running an online franchise system?
2. Crowded market
3. Low overhead costs
4. Lacks social interaction
5. High dependence on online marketing

Response: See section 4.1

Level: Medium

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is known as the birthplace of franchising?
2. China
3. United Kingdom
4. Canada
5. United States

Response: See section 4.1.1

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is NOT the form of franchising?
2. Trade name franchising
3. Business format franchising
4. Conversion franchising
5. Diversion franchising

Response: See section 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is a form of franchising that includes only the rights to use the franchisor’s trade name and/or trademarks?
2. Trade name franchising
3. Business format franchising
4. Conversion franchising
5. Product distribution franchising

Response: See section 4.1.2

Level: Easy

Learning Objective: Explain the meaning and history of franchising

1. Which of the following is an advantage of franchising for the franchisor?
2. Unresolved management disputes
3. Multiple sources of revenue
4. Limited point-of-scale control
5. Reduced influence

Response: See section 4.2

Level: Medium

Learning Objective: Identify the advantages and disadvantages in franchising

1. Which of the following is an advantage of franchising for the franchisee?
2. Freedom to reinvent the wheel
3. Risk of fraud
4. High point-of-scale control
5. Proven business model

Response: See section 4.2

Level: Medium

Learning Objective: Identify the advantages and disadvantages in franchising

1. In franchising, ________is responsible for managing growth at the corporate level
2. Franchisor
3. Franchisee
4. Human resource manager
5. Marketing manager

Response: See section 4.2

Level: Medium

Learning Objective: Identify the advantages and disadvantages in franchising

1. Which of the following fees are associated with a franchising business?
2. Royalty
3. Advertising fee
4. Franchising fee
5. All of the above

Response: See section 4.2.1

Level: Medium

Learning Objective: Identify the advantages and disadvantages in franchising

1. Which of the following type of franchises is able to charge a very high upfront payment from new franchisees?
2. Beginners
3. Developers
4. Grower
5. Maturers

Response: See section 4.3

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which of the following has low entry requirements for new franchisees and few established outlets?
2. Beginners
3. Developers
4. Growers
5. Maturers

Response: See section 4.3

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. The BDGM typology of franchising stands for:
2. Basic, design, growth, measure
3. Basic, design, growth, modify
4. Beginners, developers, growers, maturers
5. Beginners, developers, growers, modifiers

Response: See section 4.3

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Under the FTC rule, franchisors are required to provide prospective franchisees with information about the company franchising and its principals in a document at least ______days before signing of a franchise agreement
2. 5
3. 2
4. 10
5. 30

Response: See section 4.3.1

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which of the following franchisors are considered risky?
2. Undercapitalized companies
3. Companies featured in trade magazines
4. Companies certified by reputable authorities and institutions
5. Members in trade associations

Response: See section 4.3.1

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which clause allows the termination of a franchise agreement?
2. Good cause clause
3. Bad cause clause
4. Non-compete clause
5. Exculpatory clause

Response: See section 4.3.1

Level: Easy

Learning Objective: Distinguish between different types of franchises

1. The ‘good cause’ clause means that the contract can be terminated if a franchisee:
2. Asks for training and business advice
3. Engages in some type of breach of contract
4. Is good in handling operations
5. Pays royalty

Response: See section 4.3.1

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which is correct of the Uniform Franchise Disclosure Document?
2. Is required by the Federal Trade Commission (FTC)
3. Is the same as the Uniform Franchise Offering Circular
4. Identifies the information all franchisors must to potential franchisees
5. All of the above choices are correct

Response: See section 4.3.1

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which of the following is NOT part of the information in the Uniform Franchise Disclosure Document?
2. Litigation history
3. Initial investment
4. Renewal and termination
5. Personal lifestyle

Response: See section 4.3.1

Level: Medium

Learning Objective: Distinguish between different types of franchises

1. Which of the following aspects a franchisee must consider before signing the franchise agreement?
2. Whether a new business aligns with his/her interest and skills
3. Willing to invest the time in the day-to-day management of the new business
4. Willing to invest capital to buy and run the franchise
5. All of the above

Response: See section 4.4.1

Level: Easy

Learning Objective: Decide whether franchising is a good option for you