CHAPTER 2

Franchisees may pay a fee that is separate from the royalty fee, often called a ________, to contribute to a shared advertising fund. A) Cooperative advertising fee B) Cooperative franchising fee C) Cooperative marketing fee D) Cooperative print fee E) Cooperative media fee

A) Cooperative advertising fee

Any cost saving resulting from franchisee purchasing power helps to offset other costs, such as franchise ________. A) Fees B) Accounting C) Gains D) Losses E) Overhead

A) Fees

The term "FDD" stands for which of the following? A) Franchise Disclosure Document B) Franchisee Disclosure Document C) Franchisor Disclosure Document D) Federal Disclosure Document E) None of the above

A) Franchise Disclosure Document

Products and services in a franchise may not be altered, added, or dropped without ________. A) Franchisor agreement B) Termination of the franchise C) Penalty D) Legal action E) An act of God

A) Franchisor agreement

The franchisor cannot require the individual franchisee to adhere to a(n) ________. A) Pricing structure B) Advertising agreement C) Supplier agreement D) Operating structure E) Product line

A) Pricing structure

A franchisor's record of success can ________. A) Provide a significant advantage for your business start-up B) Be a concern for a franchisee C) Never provide help for start-up D) Be proven E) Not be counted on

A) Provide a significant advantage for your business start-up

In relation to franchising advantages, you purchase the use of the company's logo, trademark, and advertising, as well as the physical design, layout, and décor that ensure ________. A) Recognition B) Consistency C) Uniformity D) Unity E) All of the above

A) Recognition

Franchisors are ________ to provide operating manuals and training to their franchisees, which are a valuable resource for success. A) Required B) Not required C) Encouraged D) Unable E) None of the above

A) Required

Which of the following is not an ongoing cost of franchises? A) Start-up fees B) Royalties C) Top-line revenues D) Cooperative advertising fees E) All of the above are ongoing costs.

A) Start-up fees

Franchises are governed by ________ laws and regulations. A) State and federal B) State C) Federal D) International E) Federal and international

A) State and federal

The most significant advantage of a franchise is the increased probability of ________, given that franchise brands have positive track records and instant recognition in most communities. A) Success B) Failure C) Popularity D) Optimism E) Regret

A) Success

Franchisors are focused on creating wealth for ________. A) Themselves B) Friends C) Franchisees D) The community E) Employees

A) Themselves

Which of the following is true regarding inspections conducted by franchisors? A) They may be announced or unannounced. B) They are always surprise inspections. C) Specific times must be scheduled. D) It is unlawful to do such inspections. E) Very few franchisors do inspections.

A) They may be announced or unannounced.

Which of the following is true regarding the costs of franchises? A) They vary significantly. B) They are always expensive. C) They are unaffordable. D) They are outrageous. E) They are unreasonable.

A) They vary significantly.

Franchise operating guidelines ________. A) Vary considerably B) Are constant C) Are always well defined D) Never change E) All of the above

A) Vary considerably

Which of the following is not a type of franchising according to the text? A) Product and trade-name franchising B) Business-format franchising C) Inclusive franchising D) All of the above are types of franchising. E) None of the above is a type of franchising.

C) Inclusive franchising

Start-up standards required of franchisees may include which of the following? A) Specific types of experience and skills B) Net worth requirements C) Liquidity requirements D) All of the above E) None of the above

D) All of the above

In many instances, products or ingredients in a franchise must be purchased from ________. A) The franchisor B) Designated suppliers C) Any suppliers D) Both A and B E) All of the above

D) Both A and B

Many fees are must be paid regardless of ________. A) Profitability B) Cash flow C) Sales D) Both A and B E) A, B, and C

D) Both A and B

According to the text, which of the following is not a consideration when selecting a franchise? A) Self-reflection B) Research C) Geography D) Gender E) Brand

D) Gender

Strong franchisors have all of the following except ________. A) Established multiple franchises B) Positive relationships with their franchisees C) Years of experience D) Many legal disputes E) None of the above is an exception.

D) Many legal disputes

Performing due diligence may include ________. A) Fully understanding the FDD of the franchise company B) Calling on existing franchisees C) Visiting the franchise headquarters D) Doing Internet research E) All of the above

E) All of the above

Subway restaurants can be found ________. A) In traditional stand-alone units B) In convenience stores C) In shopping malls D) In military bases E) All of the above

E) All of the above

The FDD includes information such as ________. A) Fees and costs B) Contractual obligations C) Territory D) Data regarding existing units E) All of the above

E) All of the above

The formula provided by the franchise does which of the following? A) Guarantees brand recognition B) Eases the issues of start-up development C) Ensures ongoing support D) Removes the creativity and freedom E) All of the above

E) All of the above

Which of the following aspects would the franchisor control in a business-format franchising situation? A) Accounting B) Marketing C) Operations D) Quality assurance E) All of the above

E) All of the above

All of the following are a new type of franchising opportunity except ________. A) Internet franchises B) Conversion franchises C) Co-branding franchises D) Piggybacking franchises E) Leapfrogging franchises

E) Leapfrogging franchises

All of the following are selected franchise fees and costs according to the text, except ________. A) Training B) Advertising and promotion C) Fixtures D) Initial inventory E) Local publicity campaigns

E) Local publicity campaigns

All of the following are advantages of franchising except ________. A) Training B) Financing assistance C) Purchasing power D) Promotional support E) Loss of control

E) Loss of control

All of the following are factors of franchise cost except ________. A) Type of franchise B) Brand recognition C) Popularity D) Capacity to secure franchisees E) Type of product

E) Type of product

Franchisees may pay a fee that is separate from the royalty fee, often called a cooperative advertising fee, to contribute to an individual advertising fund.

FALSE

If you are looking to start a business that is creative and is not controlled by others, then franchising is your best option.

FALSE

It is uncommon for a franchisor to handle the national and regional media purchasing for a franchisee.

FALSE

Master franchises do not allow individuals and organizations to buy the right to subfranchise within a delineated geographic territory.

FALSE

McDonalds is the only franchise available for ownership internationally.

FALSE

The franchisor is the second party to the franchise agreement and is the owner of the unit or territory rights.

FALSE

The start-up and ongoing assistance provided by a franchisor guarantees your success.

FALSE

There are few resources for franchise research.

FALSE

There is no need for legal representation when entering into a franchise agreement.

FALSE

A franchise is a business that markets a product or service developed by a franchisor, typically in the manner specified by the franchisor.

TRUE

As a franchisee you will benefit from the purchasing power of the franchisor to get lower costs and improved vendor service.

TRUE

Product and trade-name franchising is the licensing of the product or the production of the product and the use of the trademark, logo, or other identity of the franchise.

TRUE

Sound franchisors provide a significant quantity and excellent quality of start-up assistance to new franchisees, as well as ongoing education and support for established ones.

TRUE

The costs of franchises vary significantly.

TRUE

The most significant advantage for a franchisee is the increased probability of success.

TRUE