Ch.7

Who must negotiate a final deal to purchase a business?

c. The potential buyer

The individual who buys the franchise is the

c. franchisee.

The person who sells the franchise is usually required to do all of the following except:

c. pay a fee.

The inventory should be examined for which of the following?

a. salability b. correspondence between the physical count and the book count c. up-to-datedness

The advantages of franchising include:

a. training and guidance. b. brand-name appeal. c. proven track record.

What is the role of business brokers in acquiring an established entrepreneurial venture?

Business brokers are professionals who specialize in business opportunities. Often they can provide leads and assistance in finding a venture for sale. However, the buyer should evaluate the broker's reputation, services, and contacts. The buyer should also recognize that the broker usually represents the seller and gets a commission on the sale of the business.

Briefly explain the new-old approach to creating new ventures.

Most small ventures do not start with a totally unique idea. Instead, an entrepreneur piggybacks on someone else's idea by either improving a product or offering a service in an area in which it is not currently available. Some common examples of business venturing based on the new-old approach are restaurants and clothing stores

Why did the Federal Trade Commission enact the Franchise Rule?

The Franchise Rule attempts to codify the disclosure requirements associated with the purchase of franchises. The rule requires franchisors to make full presale disclosure at least ten days before a contract is signed or payment made

The Franchise Disclosure Document (FDD) is a legally required disclosure document that must be presented to potential franchisees during presale discussions.

True

The elimination of time and effort associated with starting a company is an advantage of acquiring an ongoing venture.

True

A key question to ask when buying an on-going small business is which of the following?

d. How many personnel are going to remain?

Which is not a key question to ask when buying a business?

d. Is the building heated with gas or electricity?

In negotiating a deal to purchase an existing business, it is possible to request that the seller retain a minority interest in the firm.

a. True

Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying an existing one, is that the franchisor will usually provide both training and guidance to the franchisee.

a. True

The prospective investor should get as much information as possible on the franchisor.

a. True

The terms upside gain and downside loss refer to the profits the business can make and the losses it can suffer.

a. True

When purchasing an existing business, the prospective owner should conduct an assessment of the business's current group of employees.

a. True

Which of the following is not a key question a prospective buyer needs to ask in buying a business?

a. What is the owner's personal net worth?

An additional consideration to keep in mind when negotiating to purchase an existing business includes requesting that the seller retain __________ in the firm.

a. a minority interest

When should a potential franchisee receive the FDD (Franchise Disclosure Document)?

a. at least ten days before signing a contract or paying any money

Franchisees have the option of using the logo and symbols of the franchisor.

b. False

The Federal Trade Commission does not provide information on franchise success.

b. False

A ____ is a system of distribution that enables a supplier to arrange for a dealer to handle a specific product or service under certain mutually agreed upon conditions.

franchise

Which of the following is an intangible asset

goodwill

Check My Work When one designs a unique good or service, the individual is said to have used a(n) ____approach to starting the business.

new-new

Uniqueness in a product or service can be demonstrated through a new-new approach or a new-old approach.

. True

An advantage to buying an ongoing business is

. all of these

An agreement not to compete is also known as

d. a legal restraint of trade.