396 Ch. 4

When is a bargain price for an existing business not a good deal for the buyer?

-When the seller intends to open a competing business in the same locality -When the business is losing money -When the neighborhood is deteriorating (all of the above)

Which source of franchise information is produced by a federal agency?

Buying a Franchise: A Consumer Guide

Which factor is a non-quantitative factor of valuing a business?

Future community development

Where would you suggest Xavier look for information about possible franchise opportunities?

Inc, Entrepreneur, or the Wall Street Journal

When Konrad purchased his business, he purchased it as a total entity. As a result,

Konrad assumed responsibility for all outstanding debts incurred by the business.

Consider this quote: "If you can't follow somebody else, don't buy a franchise." Which characteristic of a franchise does this quote describe?

Loss of entrepreneurial independence

When evaluating the financial data of a 10-year-old business that is being considered for purchase, which issue will be of least concern?

Not having the books for Years 1-5 due to a fire

RST, Inc., a franchisor, is requiring its franchisee, Raymond, to make significant changes to the equipment and interior appearance of his business as a condition of renewing the contract. RST claims this is necessary because:

RST has changed its marketing plan and Raymond's store did not keep up with the changes.

Which of the following reasons for buying a business is also a reason for purchasing a franchise?

Reduction of uncertainty

Business format franchising is best illustrated by the system offered by

Subway.

In what way is a franchisee's control over the business greatly reduced?

The franchisee is bound by the terms of the franchise contract

Marvin is selling his business as a total entity. The buyer has offered a very large down payment, but Marvin would prefer a lower down payment and a longer repayment period. Why?

To reduce Marvin's annual tax liability on the profit of the sale.

What question is the least important when developing a franchise from an independent business?

Who will develop the operations manual?

Fred's company specializes in bringing together buyers and sellers of businesses. Fred is:

a business broker.

Most franchise experts recommend that the FDD be examined carefully by

a franchise attorney and an accountant.

The agreement Irma signed with McDonald's that allows her to open a restaurant using the McDonald's name is:

a franchise contract.

Bart is meeting with a representative of GHI, a franchisor. He has received information about the franchisor's finances, experience, size, and involvement in litigation. Bart has been given:

a franchise disclosure document.

Caron signed a contract with Devon allowing her to provide services using Devon's trademark, logo, and business model. This business is:

a franchise.

Edward signed a contract allowing Francine to sell products using his brand name so long as the product meets Edward's quality standards. Edward is:

a franchisor.

Rick was so successful with his Sweet Treats franchise that he opened several other Sweet Treats locations. Rick could best be described as:

a multiple-unit owner.

Edmond is negotiating to purchase an existing business. One provision he should write into the sale contract is:

a non-compete agreement.

Nardell has operated a successful franchise for a few years and would now like to open another similar business under his own brand. The contract Nardell signed prohibits his doing so. The contract contains:

a non-compete clause.

Cheryl is on vacation across the country from her hometown and she's hungry. Ahead she sees the familiar Golden Arches and knows she can find her favorite hamburger. These Golden Arches are:

a trademark

Martina's franchise agreement allows her top open up to seven new stores within a 100 mile radius of the first one. Martina is best described as:

an area developer.

Darin is assembling a team of experts to help him through the process of evaluating a franchise opportunity. This team should include:

an attorney, an accountant, and a banker.

Individuals or firms that possess the legal right to open multiple outlets in a given area are referred to as

area developers.

The Franchise Registry maintained by the U.S. Small Business Administration

attests that the SBA has reviewed the franchise agreement.

The offer and sale of a franchise are regulated by

both state and federal laws.

McDonald's corporation helps select the location for a new restaurant and provides financial assistance, training, marketing, and products. McDonald's engages in:

business format franchising.

The purchase price of a business is determined by negotiation between

buyer and seller.

Martin operates an ABC franchise. Recently the franchisor has attempted to make changes to the contract that would increase Martin's costs so as to make the business unprofitable. The franchisor is engaging in:

churning.

Susan is considering buying the local franchisee of Pots-R-Us. The owners would probably state this reason for selling when in actuality the other three reasons may be more likely.

desire to locate to a different part of the country

The franchise contract Pamela signed with DEF Company specified she would have an exclusive sales territory. While the contract was still in force, DEF opened a corporate-owned store within her territory. DEF is guilty of:

encroachment.

Belinda signed a _____________ that is a legal agreement between two parties in a franchise arrangement.

franchise contract.

A franchise is able to control costs because:

franchise networks have greater buying power.

Abner signed a contract allowing him to use Brian's business model and sell products approved by Brian. Abner is:

franchisee.

Annabell has been granted the right to conduct business according to specified methods and terms of another party. Annabell is a:

franchisee.

JKL Corporation grants another party the right to conduct business according to specified methods and terms. JKL is a:

franchisor.

Besides the up-front money required of a franchisee, Stuart will have to pay building costs and purchase inventory and equipment. This type of expense is called:

investment costs.

Cameron has established a successful business and would like to expand. He is considering becoming a franchisor. Before taking that step, Cameron should:

make sure his business model is reproducible.

Jeffrey's job is to identify potential business people in his country who might want to do business using a particular brand name. When the contract is signed, Jeffrey then provides training to the business person. Jeffrey is most likely:

master licensee.

Matthew is an individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory. Matthew is a(n):

master licensee.

Quality Dining, Inc. operates several different restaurant franchises including Burger King, Olive Garden, Dairy Queen, and several others. Quality Dining has its own corporate structure and stockholders. This corporation is an example of:

multibrand franchising.

The franchising strategy whereby an individual or firm is granted the legal right to own more than one unit of a franchised business is known as

multiple-unit ownership.

Harold was given the chance to examine the tax returns and financial statements of a business he is considering for purchase. The seller asked him to sign a _____________ that prohibits Harold from sharing this confidential information with anyone else.

non-disclosure agreement

Union contracts are among the many _____ factors in valuing a business.

nonquantitative

Before making an offer for a business, Garland will want to

perform due diligence.

A Starbucks franchise located inside a Target store is called ______ franchising.

piggyback

Sister Mary Cupcake has partnered with the management of the toll road to operate her stores in the travel plazas. This arrangement is an example of:

piggyback franchising.

An entrepreneur would choose a franchise over an independent startup most likely because of the

probability of success.

Geraldo owns a well-known brand and allows Henry to sell products with that brand name. Geraldo has agreed to:

product and trade name franchising.

Leonard and the seller have agreed to a price for a business. Leonard cannot pay cash for the entire purchase price so he applied for a bank loan. The bank is likely to:

require the assets of the company serve as collateral for the loan.

Nardell's franchise contract contains language that prohibits him from opening a similar business under his own brand. Nardell considers this to be:

restraint of trade.

A disadvantage of franchising is

restricted sales territories

Each month Tomas must report his gross sales and pay a percentage of that amount to his franchisor. This percentage is:

royalty fees.

The cost of a franchise may include

royalty payments.

One of the most important features of the franchise contract is the provision related to

termination and transfer of the franchise

One possible disadvantage of becoming a franchisor is:

the cost of franchising exceeds the franchise fee.

In addition to the regular monthly payment of a percentage of gross sales to her franchisor, Wilma is required to submit a smaller percentage for advertising costs. She is willing to do this because:

the franchisor promotes the business both locally and nationally, reinforcing the brand name.

RST, Inc., a franchisor, is requiring its franchisee, Raymond, to make significant changes to the equipment and interior appearance of his business as a condition of renewing the contract. Raymond suspects:

the franchisor wants to sell the franchise to someone else.

Stuart is interested in opening a QRS franchise. QRS requires up-front payment of $150,000. This amount represents:

the initial franchise fee.

Having worked professionally for 10 years, Tom and Kate have decided to start a new franchise. Considering their background, a disadvantage for them becoming franchisees is

the restrictions on business operations.

The seller of an existing business placed a high value on his experienced employees. The buyer should be wary of this because:

the workers may decide to leave after the sale.

Jasper is evaluating a business for possible purchase. He needs to know what a fair offering price should be. One way to do this would be:

to appraise the value of the assets of this business.

Imelda told a prospective buyer of her business she reported only half the cash from the vending machines on her cash flow statement and income tax returns. Her purpose in doing so was:

to reduce her income tax liability.