CH. 14 - Franchising and Purchasing an Existing Business

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

Uniform Franchise Offering Circular

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

Web

The "Territory" section of the UFOC describes the ______.

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

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

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

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

widely different

The "______" section of the UFOC outlines what the potential franchisee must purchase from the franchisor.

Restrictions on Sources of Products and Services

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.

The "______" section of the UFOC details the exact status of the franchisor's intellectual property, such as logos, symbols, and words.

Trademarks

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

for 5, 10, or 20 years

A(n) ______ ______ is the basic contract generated by a franchisor for all franchisees.

franchise agreement

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

franchisee; franchisor

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

franchisor

A ______ specializes in selling businesses.

business broker

Which of the following are ways in which a franchisor earns profits?

- Collecting a percentage of sales from the franchisee - Selling supplies to the franchisee - Selling the franchise to the franchisee

Which of the following statements regarding franchisors' long-term success are true?

- Franchisees are likely to be more successful when the franchisor provides high-quality products and helps with finding locations - Must have a high-quality support program in place - Franchisees must be successful so they will continue to pay royalties and purchase supplies

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

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

Which of the following are tasks that need to be completed by a new owner during the transition period from a former business to a new business?

- Meet with every member of the current staff - Spend a significant amount of time being visible

Identify the unique aspects to purchasing an existing business.

- Negotiating a deal to acquire exactly what is required from the operation - Developing a plan for the business - Organizing the process of change within the business

Which of the following are areas that the potential franchisee may be able to negotiate with the franchisor?

- The franchise's time frame - Up-front capital requirements - Continuing royalty fees

1. There are few existing franchises in an area. 2. The franchisee has had prior success in business, and the franchisor is new.

- 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 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 issues that a franchisee should consider in purchasing a franchise?

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

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

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

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

- There is an established set of processes - It has an established cash flow - There is a higher likelihood of success

Which of the following statements regarding the franchise fee are correct?

- To use the franchise's name - To business operational advice - The right to open a branch in a given area

Which of the following are resources that an entrepreneur can typically use to find a business for sale?

- Trade associations for the industry - The local Small Business Administration Office - Attorneys and CPA firms

Which of the following should the potential entrepreneur consider in developing a plan of operation?

- Will the business's mission and vision change? - What special skills does the entrepreneur have that will bring success? - What changes will be made?

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

An existing business has an established cash flow

When selecting franchisees, it is in the best interest of a franchisor to purse only ______.

individuals who are the most motivated, best capitalized, and most skilled

The Uniform Franchise Offering Circular ______.

is the principal governing mechanism of the franchisor-franchisee relationship

The "Restrictions on What the Franchisee May Sell" section of the UFOC describes ______.

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

The Uniform Franchise Offering Circular ______.

must be provided to the potential franchisee early in the process

Potential franchisees should evaluate franchisors' operations based ______.

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

Opening a franchise business has a great deal in common with ______.

purchasing an existing business

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

similar

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

the complete UFOC

The reason franchises have become a popular form of business is due to ______.

the franchisor offering a standard, well-known product or service

The "Renewal, Termination, Transfer, and Dispute Resolution" section of the UFOC details ______.

the method of dispute resolution

One of the reasons for the passage of the Uniform Franchise Offering Circular (UFOC) is that ______.

there were excessive abuses by franchisors in the industry