Entrepreneurship Chapter 7

Name operating costs of a franchise.

- initial franchise fee - start-up costs - royalty fees - advertising fees

Reasons a business owner might put his/her business up for sale

- insufficient sales/profits - new competition - fear of changing economic conditions - retirement - dispute among partners - death/illness of a partner - the owner's desire to do something different

What government agency monitors activities such as false or misleading advertising and price setting by competitors?

Federal Trade Commission (FTC)

Income from what type of ownership is taxed twice?

corporation

What are the owners of a limited liability company known as?

members

How many franchises are operating in the US today?

more than 909,000

Which is easier - starting a new business or taking over an existing business/franchise?

taking over an existing business

What is the board of directors of a corporation not responsible for?

the day-t0-day management of the corporation

What is the main reason entrepreneurs set up corporations?

liability

What is the board of directors of a corporation responsible for?

- electing the corporation's officers - determining their salaries - setting the corporation's rules for the conducting business - decides how much the corporation should pay in dividends

What are the advantages to buying an existing business?

- Already has the necessary equipment, suppliers, and procedures in place - The seller of a business may train the new owner - There are prior records of revenuers, expenses, and profits - Financial arrangements can be easier

What are the advantages of owning a franchise?

- An entrepreneur is provided with an established product/service - Franchisers offer management, technical, and other assistance - Equipment and supplies can be less expensive - A guarantee of consistency attracts customers

Name the disadvantages of owning a sole proprietorship.

- Difficult to raise money for a sole proprietorship (only one investing) - You bear the burden of all the risks - An entrepreneur's personal assets may be taken to pay what is owed if business fails

What are the disadvantages of owning a franchise?

- Franchise fees can be costly and cut down on profits - Owners of franchises have less freedom to make decisions than other entrepreneurs - Franchises are dependent on the performance of other franchisees in the chain - The franchiser can terminate the franchise agreement

What information should you seek out when purchasing an existing business?

- Why are the closing the business - How much the business costs to run - get expert help to make sure you should buy the business - get a list of all assets in written form

What information is included in a Franchise Disclosure Document?

- brief history of the franchise - brief summary of the officers, directors, and other executives - the franchise fees and royalties, - approximation of the initial costs of starting and any additional fees (equipment, inventory, operating capital, insurance) - the names and address and phone number of at least 100 current franchisees - number it anticipates selling in the next year - how many were sold/terminated/transferred in last 3 years - brief description of any major civil/ criminal/bankruptcy actions - terms of the franchise agreement - reasons a franchiser may terminate the contract before it expires - franchiser responsibilities to the franchisee - the franchisee's principal obligations under the franchise agreement

Why was antitrust legislation necessary?

- created to make monopolies in certain industry illegal - also to ban other types of business activities that do not promote competition

How many prior years the current owner should provide financial accounting records?

3 years

How long does a copyright remain in effect?

70 years after death of author

What % of businesses are owned by families?

90%

Are initial franchise fees refundable?

No

What does the FTC require franchise sellers to provide to potential buyers before they commit to a purchase?

The franchise disclosure document (FDD)

What is the Fair Credit Billing Act?

To help consumers correct credit card billing errors and a method for resolving problems.

What is the Robinson-Patman Act for?

protects small businesses from unfair pricing practices