ENTR Chapter 14

The franchise disclosure document (FDD) contains ______ specified items that all franchisors must disclose.

23

Which of the following are typical areas in which franchisors provide support to franchisees?

Accounting systems Training new franchisees Marketing and branding

How is buying an existing business not like purchasing a franchise?

An existing business has an established cash flow.

A franchisee generally receives which of the following when purchasing a business?

An understanding of customer buying patterns before the business begins operations Policies and procedures for running the business A well-established business model

Most franchisors are willing to send out an initial information packet containing which of the following materials?

Details of the business The firm's operations Franchise costs

Which of the following statements about starting a franchise are similar to starting a business from scratch?

Entrepreneurs should assess their skills and interests. A significant amount of up-front cash is required to begin operations. The ability to leave the venture if an entrepreneur does not enjoy the business is severely limited

In the franchise system's bankruptcy section of the franchise disclosure document (FDD), the company must disclose which of the following?

Prior or current filings

Which of the following are methods for becoming a business owner?

Purchasing an existing business Opening a franchise business Starting a business from scratch

When determining the industry to enter, each potential franchisee should examine that industry, the potential competitors in the industry, and their position relative to other new franchisees that are entering the industry.

True

An individual looking to buy a franchise should _____.

identify a franchisor that is the best potential match for him or her in terms of support, expansion plans, and so on

In the ______ section of the franchise disclosure document (FDD), the franchisor must disclose all fees that are charged to franchisees.

initial franchise fee

The _____ section of the franchise disclosure document (FDD) includes a reasonable estimate of the total investment needed by a franchisor to begin operations.

initial investment

The franchise disclosure document (FDD) _____.

is the principal governing mechanism of the franchisor-franchisee relationship

The restrictions on what the franchisee may sell section of the franchise disclosure document (FDD) describes _____.

limits placed on the franchisee regarding what it can do with the product and its production

Potential franchisees should carefully read and understand the "Litigation" section of the franchise disclosure document (FDD) because _____.

litigation can destroy the value of one's franchise if it concerns issues such as who developed the idea for the product and the franchisor loses

The franchise disclosure document (FDD) _____.

must be provided to the potential franchisee early in the process

The _____ section of the franchise disclosure document (FDD) describes whether the franchisee is required to be actively involved in the business.

obligation to participate in the actual operation of the franchise business

Potential franchisees should evaluate franchisors' operations based _____.

on their support for important areas such as accounting, marketing, and training.

The franchisor _____.

originates the business idea, develops the operational methods, and then sells them

The _____ section of the franchise disclosure document (FDD) contains how disagreements will be resolved.

renewal, termination, transfer, and dispute resolution

The ______ section of the franchise disclosure document (FDD) outlines what the potential franchisee must purchase from the franchisor.

restrictions on sources of products and services

The _____ section of the franchise disclosure document (FDD) outlines any limits on what the franchisee can do with the product and its production.

restrictions on what the franchisee may sell

The franchisor's obligations section of the franchise disclosure document (FDD) details _____.

services such as site selection and training offered by a franchisor

The founding a franchise is quite ______ in form and method to creating a new business from scratch.

similar

In the franchisee's obligations section of the franchise disclosure document (FDD), the franchisor describes _____.

specific obligations for running all aspects of the business operations

The _____ section of the franchise disclosure document (FDD) describes the geographic exclusivity that the franchisee will have relative to other franchisees' operations.

territory

The business experience section of the franchise disclosure document (FDD) explains _____.

the background of the principals of a business

The franchisor usually provides the franchisee with ______ after the potential franchisee has been vetted.

the complete franchise disclosure document (FDD)

The "Other Fees" category in the franchise disclosure document (FDD) includes information about _____.

the costs of support services that are independent of the initiation fee to buy a franchise

The trademarks section of the franchise disclosure document (FDD) details _____.

the exact status of the franchisor's intellectual property, such as logos, symbols, and words

The renewal, termination, transfer, and dispute resolution section of the franchise disclosure document (FDD) details _____.

the method of dispute resolution

The financing section of the franchise disclosure document (FDD) describes _____.

the types and terms of any franchisor credit that is available

One of the reasons for the passage of the franchise disclosure document (FDD) is that _____.

there were excessive abuses by franchisors in the industry

The _____ section of the franchise disclosure document (FDD) details the exact status of the franchisor's intellectual property, such as logos, symbols, and words.

trademarks

The restrictions on sources of products and services section of the franchise disclosure document (FDD) describes _____.

what the potential franchisee must purchase from the franchisor and what the franchisee can source independently

The obligation to participate in the actual operation of the franchise business section of the franchise disclosure document (FDD) describes _____.

whether the franchisee is required to be actively involved in the business

Franchisors offer ______ benefits to franchisees who purchase a franchise from them.

widely different

The initial franchisee vetting usually includes _____.

a credit and personal background check

In the initial franchise fee section of the franchise disclosure document (FDD), the franchisor must disclose _____.

all initial fees

The ______ section of the franchise disclosure document (FDD) discloses prior or current insolvency filings by the firm or key managers.

bankruptcy

Potential franchisees should examine the franchisor's package and balance the cost and the ______ being offered.

benefits

Many franchisors require potential franchisees to work for an established franchisee for a period of time because they _____.

can learn about the franchise from the ground up

"The Franchisor, Its Predecessors, and Affiliates" section of the franchise disclosure document (FDD) _____.

discloses any predecessors to the current business

Gaining an understanding of a business's processes is best acquired through _____.

experience

In the _____ section of the franchise disclosure document (FDD), the types and terms of franchisor credit are described.

financing

Franchise agreements usually allow the franchisee to operate the business _____.

for 5, 10, or 20 years

The ______ is the principal governing mechanism for both the franchisor and franchisee.

franchise disclosure document

An entrepreneur or business owner who pays a fee to obtain a franchise from a firm that originates the idea for a business and develops the operational methods is known as the _____.

franchisee

In the ______ section of the franchise disclosure document (FDD), specific requirements that the franchisee must follow are described in detail.

franchisee's obligations

The ______ is the entrepreneur who buys the franchise from the ______.

franchisee; franchisor

Franchisors must estimate in the initial investment section of the franchise disclosure document (FDD) how much _____.

franchisees need in total to begin operations

A(n) ______ is the firm that originates the idea for the business and develops the operational methods.

franchisor

The _____ section of the franchise disclosure document (FDD) details the ancillary services that are offered by a franchisor.

franchisor's obligations

The territory section of the franchise disclosure document (FDD) describes the _____.

geographic exclusivity that the franchisee will have relative to other franchisees' operations

Which of the following issues is typically detailed in the business experience section of the franchise disclosure document (FDD)?

How long has a franchisor been in the business?

Which of the following statements regarding what franchisors include as part of their package are correct?

Some franchisors provide different levels of support depending on how much the franchisee is willing to pay. Franchises include the business name and a general plan for business operations. Franchisors sometimes act like a business partner.

There are few existing franchises in an area.

The franchisor may be willing to finance a greater portion of the start-up expenses, provide additional marketing support, or even pick up some of the initial expenses of a franchise in order to get a foothold in a new geographic region.

The franchisee has had prior success in business, and the franchisor is new.

The franchisor might negotiate a completely different deal with the franchisee in order to get started with a self-sufficient operator.

Which of the following are elements that typically come with purchasing a franchise?

The right to operate under the agreement for a standard period of time A geographically protected area to conduct business The business name, branded products, and service

Purchasing a franchise can decrease the risk of becoming a business owner for which of the following reasons?

There is a well-established formula for running the business.

Which of the following are the benefits of purchasing an existing business?

There is an established set of processes. There is a higher likelihood of success.

Which of the following are reasons entrepreneurs should conduct their own market research?

To better understand the demand for a product or service One wants to make sure they are not buying into a fad but a viable long-term business. The market research should be independent of the franchisor.

"The Franchisor, Its Predecessors, and Affiliates" is the first section of the franchise disclosure document (FDD).

True

An entrepreneur should explore what aspects of a franchisor-franchisee contract are negotiable by making a list of wants and desires.

True

Individuals thinking they were buying a franchise that gave them an opportunity for success found that they had paid for what amounted to little more than a name. This resulted in the passage of the franchise disclosure document (FDD).

True

Purchasing a franchise is one of the ways of starting one's own business.

True

Most franchisors have a ______ page where potential franchisees can contact them for more information.

WEB

Which of the following are issues that a franchisee should consider in purchasing a franchise?

What the franchise includes The franchisee's obligations The franchisor's obligations