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CHAPTER 5
FRANCHISING
TRUE/FALSE
5.1 The first important use of product franchising involved the Singer Corporation. Answer: T 5.2 Because of the mark-up charges by the franchiser, the cost of materials and supplies are always higher than what the franchisee would pay on the open market. Answer: F 5.3 Due to the interest the franchiser has in the success of its franchised units, it frequently puts considerable emphasis on helping the units make operational improvements. Answer: T 5.4 One of the problems that franchisees often must deal with is an unrealistic set of expectations regarding the likelihood of success of their unit. Answer: T 5.5 The evaluation of whether to buy a franchise need not involve self-examination of interests because the franchiser will notice any problems of this nature and warn you about them. Answer: F 5.6 Library research is likely to be an important part of any investigation into whether to buy a franchise. Answer: T 5.7 An important source of franchises available for purchase is the government publication, The Commerce Business Daily. Answer: F 5.8 Because of the government’s interest in protecting parties involved in franchising, the prospective franchisee must notify the franchiser within two weeks after
receiving the franchise agreement or lose out on the deal. Answer: F 5.9 The disclosure statement is also called the prospectus. Answer: T 5.10 The type of commerce known as business opportunities has seen many fraudulent practices develop in recent years. Answer: T MULTIPLE CHOICE 5.11 Product franchising is an arrangement in which a. dealers are given the right to distribute goods for a manufacturer. b. the dealer is the franchising agent. c. the manufacturer is the franchisee. d. all of the above. e. none of the above. Answer: a 5.12 Manufacturing franchising a. is commonly used in the soft-drink industry. b. gives the bottler the right to produce and distribute the product. c. provides franchisees the exclusive right to distribute in a particular area. d. all of the above. Answer: d 5.13 Business-format franchising a. is commonly seen in the petroleum industry. b. has revolutionized the retailing of automobiles. c. was developed by General Motors. d. all of the above. e. none of the above. Answer: e 5.14 Here in the United States, ________franchising accounts for nearly 75 percent of all franchised outlets. a. manufacturing b. lease
b. instant recognition. c. purchasing power. d. advertising scope and sophistication. e. all of the above. Answer: e 5.20 Among the types of service frequently provided by the franchiser to aid in start-up is a. site selection advice. b. facilities layout analysis. c. management training. d. employee selection and training. e. all of the above. Answer: e 5.21 An individual who is thinking about buying a franchise a. has little to go on as she tries to assess her prospects for success. b. can get a guarantee from any respectable franchiser as to what will happen should he or she buy one. c. usually has a very sound basis for judging the prospect of success by examining the performance of established franchises. d. none of the above. Answer: c 5.22 The franchiser-franchisee relationship has been described as symbiotic; that means a. each party provides the other something beneficial it cannot provide for itself. b. each will gain from the relationship. c. each will contribute. d. all of the above. e. none of the above. Answer: d 5.23 The advertising efforts of companies with large numbers of franchisees a. are typically more sophisticated than those of a small business. b. cost more per outlet than do those of an individual business. c. generate no higher level of sales for the franchisees as a group, but simply redistribute sales between outlets. d. all of the above. e. none of the above. Answer: a
5.24 The operations of franchised outlets a. tend to be more efficient than those of an independent business. b. are made more efficient by centralized functions such as information systems and inventory control. c. are very important because even a little inefficiency can mean failure in some industries. d. all of the above. Answer: d 5.25 The restrictions provided by the franchiser a. are partially the result of the franchiser’s interest in uniformity. b. can be quite extensive ranging from accounting to product line. c. are likely to be disagreeable to the individual with a creative urge. d. all of the above. e. none of the above. Answer: d 5.26 Among the disadvantages faced by a franchisee are a. the costs associated with owning a franchise. b. dealing with a skeptical public. c. recruiting and developing employees. d. all of the above. Answer: a 5.27 The International Franchise Association says that of the franchise units opened in the last five years a. 20 percent have failed. b. nearly half have scaled back operations. c. 80 percent show above average profits. d. 20 percent have hired high school drop-outs. e. none of the above. Answer: e 5.28 The survival rate of franchised operations a. is considerably below that of independent businesses. b. is subject to disagreement between those who have reported their assessment. c. is not a relevant issue except for government policy experts. d. all of the above. Answer: b
5.34 Analysis of the industry that a prospective franchisee is considering entering involves a. a great deal of data gathering. b. the determination of the industry’s dominant economic characteristics. c. a close look at the competition. d. identification of substitute products. e. all of the above. Answer: e 5.35 The most important single element for the prospective franchisee to investigate is a. financing options. b. market size. c. the nature of the competition. d. the franchiser. e. none of the above. Answer: d 5.36 The Franchise Opportunities Handbook gives information on approximately how many franchisors? a. 500 b. 1000 c. 10, d. 50, Answer: b 5.37 The information given in the Franchise Opportunities Handbook includes a. royalty fee. b. franchise fee. c. number of franchised units. d. a description of the operation. e. all of the above. Answer: e 5.38 With regard to a statement of projected income made by the franchisor to help you evaluate a franchise, a. it will be a standard part of the information provided. b. the law keeps the franchisor from even hinting at what a franchisee might make. c. you will get one, but only if you request it in writing. d. any statement is required by law to be backed by substantiation and therefore you are not likely to get one.
Answer: d 5.39 In searching for information with which to evaluate a franchise, the existing franchisee group a. is a very important source of information. b. is precluded by law from making any comment. c. is not likely to tell anything a prospective franchisee needs. d. is made up of individuals who are so busy that there is little point in contacting them. Answer: a 5.40 The legal measures of federal and state governments a. provide protection against corrupt franchisor practices so as to make franchisee losses rather rare. b. have attempted to stop corrupt practices by franchisors but do not provide much relief for someone who has been victimized. c. have cut losses caused by unscrupulous franchisors to a small fraction of what they had been. d. are now jointly coordinated by the Securities and ßExchange Commission, the FBI, and FEMA. Answer: b 5.41 Part of the information a prospective franchisee is given is the franchise agreement; it is a. the contract between the franchiser and the franchisee. b. a source of details about the relationship between franchisees and the company. c. written by the franchiser. d. all of the above. e. none of the above. Answer: d 5.42 The disclosure statement a. gives information on 23 specified topics. b. is required by the Federal Trade Commission. c. is also called the uniform franchise offering circular. d. is also called the prospectus. e. all of the above. Answer: e 5.43 After an individual has been given copies of both the franchise agreement and the disclosure statement he or she
5.48 In the area of business opportunities a. protecting against abuse is about the same as in franchising. b. states have been effective in preventing swindles. c. enforcement of the law is difficult and spotty. d. all of the above. Answer: c 5.49 The seller of a business opportunity a. faces the same Federal Trade Commission restrictions as apply to franchisors. b. faces greater restrictions, at both federal and state levels, than franchisors. c. has been exempted from the law so far. d. does not require regulation. Answer: a
