Franchising

Whatever be the methodology, the prospective franchisee has to build comprehensive information on the franchisor, the, products or service of the offer, competing and substitute products and services before he makes any move committing his financial resources on a long-term basis.

• True
• False

It is essential to design a prototype of the ,business that is to be franchised because

UFOC stands for _____

• Uniform Franchise Offering Circular

Product development known as Format Development strategy adopted by the retailers as a strategy to grow involves

• Creating another format to retailer either the same or different merchandise to the existing customers by expanding product basket and by extending the store brand
• Creating another format to retail either the same or different merchandise to the same or different shoppers
• Creating another format to retailer different merchandise to the same shoppers by extending store brand
• None of the choices

The existing Franchise could inherit problems such as employees with low commitment, pricing issues, poor procedures, an sometimes legal liabilities.

• True
• False

Business format franchising involves

• All types of business where the franchisor sells the products of the franchisees, who in return, sell to the final consumer
• Designing a format by the franchisee, which is approved later on by the franchisor.
• Product modifications to be carried out in the format of the products by the franchisees.
• All types of business where the franchisor provides the way of doing business to its franchisees, with the franchisees usually responsible for the production of the final consumer product

_____ these are the financial obligations of a franchisee that arise during the conduct of the business.

• Liabilities

The right combination of four R's potential franchisee's must have;

• Response, Reciprocation, Recognition and Ratification
• Both A and B
• None of the choices
• Realism, Resources, Research, and resolve

Non-payment of declared sums is a somewhat easier matter to deal with as the franchisor can weigh up the pros of entering into litigation

• Arrears

_________________ the regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales

• Trademark
• Disclosure statement
• UFOC
• Royalty

It is essential to make sure whether the one who is interested in buying a franchise has adequate financial resources to finance the fixed assets, acquisition of the business, and maintenance of the business. attempting to stretch beyond one's financial strength could lead to disaster.

• True
• False

A franchisor should identify the core locations and peripheral locations in order to set the priority of market entry.

• True
• False

At least part of any real estate owned by the master franchisee / developer / franchisee used in the business may also have to be transferred.

• True
• False

The legal written contract between the franchisor and franchisee which tells each party what each is supposed to do

• Disclosure Statement
• Franchise Agreement
• Royalty
• Business Format

· General Questions includes;

• A, B, C and D
• None of the choices
• C and A
• A and C

Starbucks penetrated market for coffee beverages in the US using a concept called

• None of the above
• Store clustering
• Rapid penetration
• Coffee on wheels

. Liquidity represents the difficulty with which an investment can quickly be converted into cash.

• True
• False

A further issue which can arise is the Master franchisee /developer /franchisee desiring to retain at least some of the goodwill established in the franchise and carry on the business int he territory under a different name.

• True
• False

Westside – one of the largest and fastest growing chains of retails stores of trent Ltd. – a Tata group of company, pursues a growth strategy called

• none of the above
• market development
• format development
• both (A) & (B)

Pizza Hut requires all of its franchisees to own at least three franchised units within a span of three years of a franchisee’s entry into the system. This strstegy is known as

• Growth franchising
• Penetration franchising
• Triple franchising
• Multiple-unit franchising

________________________under this agreement, the franchisor grants the franchisee the right to operate several or multiple franchised businesses within the geographical area.

• All of the choices
• Area development agreement
• Direct franchising
• Master franchise agreement

It is often a common practice among all the franchisors to standardize their product offering, pricing strategies and policies, promotional efforts across the market, store ambiance, frontage, location and site selection criteria and several other aspects

• True
• False

Risk Premium is the ended amount of return that investors demand for the assumption of risk

• True
• False

The firm must have a set procedure and a well-defined way of carrying out its business.

• True
• False

Recently, Sankalp – a chain of restaurant serving South Indian dishes is planning to grow through franchising. It has more chances of being a successful franchisor because,

• it has a proven business model since it is operating a chain of restaurants for more than two decades
• South Indian dishes are very popular in India
• it has a strong brand reputation
• It is easy for a chain of stores to be a successful franchise system

Comparable Value Method market value can be transaction based or security price based.

• True
• False

_____ is the revenue earned by franchisee during a financial year. An amount of net sales is derived after deducting cash discounts employee discounts, markdowns, and free samples.

• Net Sales

Master franchising is typically employed by foreign franchisors so that a resident of the territory can expand the system in areas which the franchisor may not be familiar with.

• True
• False

While setting appropriate fees to be charged from the franchisees, a franchisor should

• Set all the fees on higher side to keep the franchise system financially healthy
• Set the fee quite low in order to attract more franchisees to enter the franchise system
• Ensure that the financial goals of the self (franchisor) as well as that of the franchisees are fulfilled simultaneously
• Ensure that franchisees generate adequate revenues to be profitable at unit level.

A potential franchisee should ask general related questions to assess the potential of a franchise. The question include;

• None of the choices
• What kind of promotional support the franchisor is likely to extend?
• What is the setting up and business acquisition cost?
• What is the market expansion plan of the franchisor?

Financial requirements for a franchise business include:

• cost of good sold to be purchased for sale
• Both A and B
• cost of regular royalty payment on sales
• Cost of entry and cost of operation

The problem starts when a person gets into franchising only because he has an entrepreneurial instinct but the instant he becomes a franchisee, the true entrepreneur in him starts resenting the shackles that are imposed by the franchising system.

• True
• False

The management of the firm willing to grow through franchising should develop distinct management competence,

• Because it requires identification of the right entrepreneurial talents at various places, converting them as franchisees and maintaining a relationship to run a franchise successfully
• Because it is difficult to manage inorganic growth than an organic growth
• Because managing a franchise is different from managing a retail business
• Because they should know more legal aspects of business than commercial aspects

The firm willing to franchise out its business must develop a successful prototype in order to train the potential franchisees the way of carrying out its business

• True
• False

NASSA stands for:

• North American Security Administration Association

UFOC stands for:

• Uniform Franchise Offering Circular

The less the time required in transferring the knowledge pertaining to carrying out the business, the more the acceptability of the system

• True
• False

Some important changes in the business environment that cause retailers to become multi-format retailers include

• shoppers’ preference to shop for most of the things under a single roof
• advancement in technology and competitive pressure to adopt new format
• all of the above
• changing buying habits of the shoppers and willingness to shop through an alternative channel

Some retailers prefer to achieve growth with the help of existing products offerings in the existing market. This strategy is known as

It is important that following termination, the franchisor takes steps to protect its trademarks and other intellectual property rights from the abuse by the master franchisee / developer/franchisee

• True
• False

Market penetration is a strategy of achieving growth with the help of existing products in the existing market

• True
• False

According to international Franchise Association, franchising is defined as

• a continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organising, training, merchandising and management, in return for a consideration from the franchisee
• a continuing relationship in which the franchisor provides a licensed privilege to do business, in return for a consideration from the franchisee
• A contractual agreement in which the franchisor provides a licensed privilege management, in return for a consideration from the franchisee
• a continuing relationship in which the franchisor offers a running business to the franchisee for a fee and also provides assistance in organizing, training, merchandising and management, if the franchisee is interested.

A potential franchisee can begin with an industry analysis in order to assess the attractiveness of a franchise. The industry analysis should include;

• Analysis of franchisors fees and investment requirements
• Analysis of industry economic traits, key driving forces, strategic group mapping, and industry key success factors
• Analysis of a franchisors country origin
• None of the choices

It takes into account costs of doing business as well as additional capital investment needed to sustain the cash flow

• Net Cash Flow

Recently, Sankalp – a chain of restaurant serving South Indian dishes is planning to grow through franchising. It has more chances of being a successful franchisor because

• It is easy for a chain of stores to be a successful franchise system
• South Indian dishes are very popular in India
• it has a proven business model since it is operating a chain of restaurants for more than two decades
• it has a strong brand reputation

Franchisor should develop a list of criteria to evaluate the potential franchisees. This should include

• Strong financial background to meet the requirements of a franchise
• All of the above
• Generally favorable attitude and a flair for becoming successful
• Ability to work as a team member and partner in a collaborative manner

________________________retailers come together to organize a wholesaling business also known as retailer cooperative owned and organized by members and offer variety of services to the members (retailers) to help them compete with corporate chain of stores by harnessing competitiveness through scale economies

• None of the choices
• Franchises
• Retailer owned cooperatives
• Wholesaler sponsored group retailers

Overall a new Franchise is low risk of doing the business with an ease to obtain finance.

• True
• False

According to International Franchise Association, franchising defined as;

• Continuing relationship in which the franchisor offers a running business to the franchisee for a fee and also provides assistance in organizing, training, merchandising and, management, if the franchisee is interested
• A contractual agreement in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training in return for a consideration from the franchisee
• Continuing relationship in which the franchisor provides a licensed privilege to do business, plus assistance in organizing, training, merchandising and, management, in return for a consideration from the franchisee
• None of the choices

An Existing Franchise available on Resale offers an assurance that a business is up and running

• True
• False

It is not important for the potential franchisor to ascertain whether the product or service that is offered has sustainable growth potential.

• True
• False

_____ also known as owners equity and indicates the value of a business after providing for all the financial obligations.

• Net Worth

This is the ended amount of return that investors demand the assumption of risk.

• Risk Premium
• Real Interest
• None of the choices
• Discount Rate

Franchising through a subsidiary or a branch office are two different methdos.

• True
• False

under the direct franchising, the franchisor grants franchisees to individual franchisees in the foreign country through the execution of an international contract

• True
• False

An Existing Franchise available on Resale could be costly to buy an existing franchise

• True
• False

_______________________ this represents the component of return from an investment with sacrificing alternative use of the invested funds.

• None of the Choices
• Risk Premium
• Discount Rate
• Real Interest

Product development – also known as format development – adopted by the retailers as a strategy to grow involves

• Creating another format to retail either the same or different merchandise to the same or different shoppers
• Creating another format to retail different merchandise to the same shoppers by extending ‘store brand’.
• Creating another format to retail either the same or different merchandise to the existing customers by expanding product basket and by expanding the ‘store brand’
• Creating another format to retail different merchandise to different shoppers by extending ‘store brand’

By meeting existing franchisees, a potential franchisee can obtain a fairly good idea about

• the available franchise opportunity
• the way in which the franchise is exactly being operated
• the future expansion plan of the franchisor
• the franchisor total market potential in all the territories

Wholesalers may also be referred to as distribution distributors or dealers

• True
• False

________________under this arrangement, a chain of retailers organized by wholesaler unite into a voluntary chain of stores, who together would offer a well orchestrated programme of merchandising and retailing to achieve an efficiency.

• Franchises
• Wholesaler sponsored group retailers
• Retailer owned cooperatives
• None of the choices

Direct Franchising the franchisor grants the franchisee the right to open one franchised business at one location with a specified geographic range that will be protected from other franchised businesses of the same system

• True
• False

A franchisor is a one

• Who has been granted rights to conduct business using a franchisor’s known-how, the franchisors brand and under the system of the franchisor.
• Who is an international retailer and enters others countries’ market to expand its operations
• Who offers exclusive distributorship to the retailers
• Who owns business concept, brand and grants franchisees to the third parties

A franchisor should anticipate probable source of conflicts between the franchisor and the franchisees and devise strategies to resolve them

• True
• False

Business is a very complex system and clarity may not prevail at all the aspects of business

• True
• False

A complex business model requiring a considerable amount of time for learning might be considered unfavorable by the potential franchisees

• True
• False

It is important to know the local sale tax, property tax, and withholding tax applicable in certain area.

• True
• False

Setting up a franchise involves complying with multiple legal requirements.

• True
• False

____________________ is a contractual arrangement of franchisor, a parent company and an individual, it allows the franchisee to run the business under the firms banner.

• Wholesaler sponsored group retailers
• Retailer owned cooperatives
• None of the choices
• Franchises

Management organic growth of an organization with the development of new products, or new markets or both are much harder to manage than to manage an inorganic growth of an organization.

• True
• False

A franchise should have a long-term _____ rather than a short-term profit orientation

• growth orientation

A well-developed franchise system also provides for managerial approach to accounting, and use of information technology to support an organizational MIS.

• True
• False

A franchisee has nobody to supervise in day-to-day running of business. One should be able to cope with such isolation and be able to perform better

_____ these are the items owned by a franchisee that has the same monetary value.

• Assets

_____ all those costs a franchisee has to incur in operating a franchise business

• Operating Expenses

In the US, the information a franchisor is required to provide to the potential franchisees, in order to enable them to make an informed decision, is governed by

• None of the Choices
• Federal Trade Commission Rules on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (1979)
• Federal Trade Commission Rules on Fair Treatment to Franchises
• Federal Trade Commission Rules on Franchise Information Disclosure

_____ the net worth of a franchisee is an arithmetic difference between total assets held by a franchise and total liabilities of a franchisee.

• Net Worth

Select one:

Franchising, if viewed from the perspective of vertical marketing system

In the United Kingdom, the franchisor-franchisee relationship is governed by:

• The Franchise (Control and Regulation) Act
• the norms laid down by the British Franchise Association
• Both A and B
• None of the Choices

Product development is an option that retailers may adopt in order to claim more share of wallet of their shoppers.

• True
• False

A new franchise the franchisors offers assistance in the pre-start up stage

• True
• False

Which of the following statements is true in a situation when a retailer attempts to pursue a format development strategy?

• It is a strategy of expanding the product basket in order to claim more share of the wallet of the shoppers.
• Not all the retailers who adopt new format become successful
• Category specialist follow this strategy to order to ultimately grow as a category killer
• All of the above

The Peoples Republic of China governs franchising under

• the Measures for Regulation of Franchises
• None of the Choices
• the Measures for Regulation of Commercial Franchises
• Regulation of Franchise Business in China

Franchise system allows franchisors to perform only the critical value chain activities and that improve their overall performance

• True
• False

Higher financial leverage indicates that the franchisee has more liabilities compared to franchisee’s own capital, it also indicates that probably the franchise business is recently started.

• True
• False

Potential franchisors should also understand their true competitive position, not only against other franchise systems but also against everyone who offers similar products or services.

• True
• False

The firms willing to expand and grow through franchising must ensure that

• All the conditions show as (A), (B), and (C) above are fulfilled
• The business is not in a concept stage
• The business is profitable at unit level
• The business being offered is for franchising is a proven business model

A fully integrated vertical marketing system develops when

• a retailer integrates backward and gets access to a supply chain that improves its ability and efficiency to serve the customers
• a manufacturer integrates forward and attempts to reach the consumers of retailers directly
• both (A) or (B) results into development of fully integrated vertical marketing system
• none of the above

A franchisor should determine whether the kind of investment the franchise system requires shall be fulfilled by the potential franchisee

• True
• False

It is essential to design a prototype of the, business that is to be franchised because

• it is the first step to franchise the business
• none of the above
• it is required by law
• it provides the replica of real business and its intricacies

_____ is the amount paid to the franchisor to purchase goods for sale. Freight charges and other taxes are added while trade discount obtained on purchase is deducted in order to arrive at this figure

• Cost of Goods Sold

A franchisee is a one

• Who owns the business concept, brand and grants franchises to the third parties.
• Who deals with retailing of a single brand
• Who has exclusive rights to distribute branded products of a company
• Who has been granted rights to conduct business using a franchisor’s known-how, the franchisor’s brand and under the system of the franchisor

In order to grow through the franchise route, it is essential that the management should be competent enough to identify the right entrepreneurial talents at various places, convert them as territory business franchisees and established a strong relationship with them in order to ensure a system-wide success.

• True
• False

Under joint ventures, foreign franchisor forms a joint venture with the local partner and creates a separate legal entity in that country

• True
• False

A potential franchisee should ask market and marketing related questions to assess the potential of a franchise. The question include;

• What is the current market size of the franchisor?
• All of the choices
• What kind of promotional support the franchisor is likely to extend?
• What is the growth rate of the market that the franchisor currently serves?

Advantage of of the franchise system to the franchsors; allows retailer to expand into different geographical market in a cost effective way.

• True
• False

A franchisor should not have a well-defined marketing strategy that includes market segmentation approach, targeting strategies, positioning approach, qualifications of a franchisee, franchisee profile, franchisee selection criteria, franchisee relation management approach, sales procedures, etc

• True
• False

A potential franchisee should meet existing franchisees, if possible, in order to know the intricacies of the business from the most authentic source.

• True
• False

The key attractions for a franchisor to grow through franchising are

• Availability of a huge untapped market
• Lower capital required to develop a franchise system
• Ease of circumventing entry barriers
• All of the above.

The management of the firm willing to grow through franchising should develop distinct management competence

• Because managing a franchise is different from managing a retail business
• Because it requires identification of the right entrepreneurial talents at various places, converting them as franchisees and maintaining a relationship to run a franchise successfully.
• Because they should know more legal aspects of business than commercial aspects.
• Because it is difficult to manage inorganic growth than an organic growth.

A new franchise has proven methods of doing business and a well-established brand reputation

• True
• False

The cost of entering a new franchisee includes expenses right from start-up expenses. i. Location and site selection ii. Interior and decoration iii. Furniture and fixtures iv. Licensing and permission v. Franchise fee

• True
• False

A potential franchise should think of appointing consultants who can guide through the entire process of market potential assessment to location planning, acquisition and establishment of a franchise.

• True
• False

_____ is the portion of gross profit remaining after providing for sales-related expenses, depreciation and tax

• Net Profit

Cost Method approach focuses upon the cost creating an economically equivalent substitute, i;e replacement value.

• True
• False

Research on the franchisor is a must for the success

• True
• False

Which of the following is true about related-area diversification followed by retailers?

• All of the above
• It helps the retailers preserve strategic unity over multiple business
• Retailers harness competitive advantage through transfer of existing skills and knowledge and thus by lowering the cost of operation
• Retailers usually achieve a consolidated performance that is more than the arithmetic summation of multiple business would have generated individually.

The franchisor’s identifying marks, brand names, and a logo that are licensed to the franchisee.

• None of the choices
• Trademark
• Disclosure Statement
• Royalty

Termination is generally resulted from breach of the franchising agreement. I

• True
• False

In the US, the information a franchisor is required to provide to the potential franchisee's, in order to enable them to make an informed decision, is governed by:

• Federal Trade Commission Rules on Franchise Information Disclosure
• Federal Trade Commission Rules on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (1979)
• Federal Trade Commission Rules on Fair Treatment to Franchisee's
• None of the choices

Which of the following is true in the context of fees charged by franchisors to its franchisees?

• If the fees are set too high, the franchise may not remain marketable against competition
• If the fees are set too low, the franchisors may not remain in a position to fulfill the promises given to the franchisees
• Setting low fees can never be competitive advantage
• All of the above

_____ sources of the fund include bank and financial institutions and provide finance based on their appraisal of the project feasibility submitted by the franchisee.

• Traditional Sources

Product distribution franchise, franchisee simply sells the franchisor’s products without using the franchisor’s method of conducting business.

• True
• False

The North American Security Administration Association (NASSA) has adopted a Uniform Franchise Offering Circular (UFOC) which defines the type of information to be disclosed to prospective franchisee. UFOC stands for:

• Universal Franchise Offering Codes
• Uniform Franchise Offering Circular
• Universal Franchise Offering Circular
• Uniform Franchise Offering Codes

Potential franchisors should set aside the impact of technological development on the growth potential of the business and should not consider the vulnerability of their business to technological advancements.

• True
• False

A firm that intends to implement growth strategy through franchising route should be able to ensure whether the business model is transferable to the franchisee.

• True
• False

· Market and Marketing Related Questions includes;

• None of the choices
• B only
• A, B, and C
• A, B, C and D

Starting a new business offers a high degree of freedom to the entrepreneur, as compared to doing a business as a franchisee

• True
• False

What business qualification does McDonald’s seek in its potential franchisees?

• An entrepreneurial spirit and strong desire to succeed
• High personal integrity
• All of the choices
• A willingness to personally devote full time and best efforts to the day-to-day operation of the restaurant as on-premise owner-operator

Sometimes franchisee's are not sufficiently motivated to perform up to mark and thus do not allow the franchisor's to achieved desired results.

• True
• False

A franchisor should ensure whether the existing management has adequate capabilities and staff to manage the growth of the franchise system. Growth of franchise system depends largely on the synergistic performance of the franchisees that are appointed to become the integral part of the franchise system

• True
• False

A master franchisee

• Is one who owns more than 10 franchises.
• is granted the rights to a substantial territory-usually a country which in turn, grants franchise rights of unit franchisees
• is one who has exclusive distribution right usually of a whole country.
• is a franchise and hence cannot grant franchise to any other party

A recent development in the system of franchising known as conversion involves

• Conversion of the manufacturers into franchisors
• Conversion of franchisors into franchisees.
• Independent business operator to convert to the form of an existing franchise system
• Conversion of product-format franchising to business format franchising

If the master franchisor is foreign company, it will be taxed only on income that arises from operations carried out in Indie or certain cases, on income that is deemed to have arisen in India. T

• True
• False

A potential franchisee should carry out self-assessment and determine whether he/she has the qualities to run a franchise successfully.

• True
• False

_____ measures profitability of a franchise business.

• Profitability ratio

There are no specific laws that govern franchising in India

• True
• False

A master franchisee is granted the rights to a substantial territory usually a whole country. It will then grant unit franchises to unit franchisees throughout the territory.

• True
• False

In Japan, the franchising is regulated under:

• the new guidelines published by Japan Fair Trade Commissions in April 2002
• None of the Choices
• Franchisng in Japan Act, 2002
• Japan Franchise Act, 2002

Franchise system allows better control over their franchisees in the conduct of the business

• True
• False

The standardization of the product/service offerings and other related areas helps the franchisors maintain uniformity of operation across the system and consistency in the quality of service being provided by the franchisees.

• True
• False

A franchisee should have an internal locus of control

• True
• False

Under area development agreement, a franchisor gives the developer the right to open a multiple number of outlets according to a predetermined schedule and within a given geographical area

• True
• False

Franchise system allows an easy entry in to a business with established products services having a widespread brand reputation and a proven business model

• True
• False

The right combination of four R's potential franchisee's must-have, Realism, Resources, Research, and Resolve.

• True
• False

A franchisee, as a part of the franchise development process, has to develop criteria for the assessment of a potential franchisor.

• True
• False

Multiple-unit franchising refers to

Retail format components are; the range of merchandise, pricing, location of the store, communication, customer service, design and display

• True
• False

Major liability of a franchisee is the long term loan obtained from bank or financial institution or sometimes from the franchisor.

• True
• False

Traditional or product format franchising is all about

• distributing or retailing products that are manufactured by the franchisor
• distributing or retailing products that are traditionally manufactured by the franchisor.
• accepting a business model for doing a business in a traditional manner
• accepting a franchise for dealing with the traditional products

Some of the specific approaches to market development strategy are

• launching products in to additional geographic markets
• All of the above
• target existing products to other market segments

Which of the following is true in case of franchising?

• All of the above.
• Franchising generates employment, earnings and entrepreneurship at the same time.
• Franchising allows business to grow faster than any other method.
• Franchising disseminates ownership rights and decision-making power to thousands of small-unit operators.

Technological changes significantly affect the way people buy products

• True
• False

The franchising agreement, in most cases, clearly indicate system, procedures, and methods of managing the resources.

• True
• False

In order to measure financial performance, four dimensions such as:

• True
• False

_____ measures the operational efficiency of a business. It usually measures performance of fixed assets and current assets of a firm.

• Activity ratio

· Finance Related Questions includes;

• Both A and B
• A Only
• A, B, and C
• A, B, C, and D

Advance tax has to be paid by both, indian and foreign corporate assesses, whose taxable income exceeds Rs. 5000/-p.a

• True
• False

The ______________________ represents the economic benefits derived from the ownership of the franchise.

• net cash flow
• Actual and Potential Value
• Real Interest
• Discount Rate

Market development as a strategic option involves

• All of the above
• Offering the existing product – with or without minor modifications – to customers in related market area by adding channels of distribution
• The least cost and the least risk compared to all the strategic options available to a retailer to grow
• Achieving growth through geographical expansion

Franchisee’s Obligations: Supply Products & Services to Customers, Recruit, Train and Supervise Employees, Locate Premises (and take the lease of the premises, if appropriate), Vehicles (buy/lease suitable vehicle), Intellectual Property, Internet and Social Media (comply with brand guidelines), Accounting and reporting Requirements

• True
• False

_____ measures the franchisee’s abilities to meet short term liabilities of the business.

• Liquidity ratio

The net cash flow represents the economic benefits derived from the ownership of the franchise.

• True
• False

It is difficult to manage relationship with the franchisee's

• True
• False

It is always advisable to solicit expert advice of competent legal advisors for different types of legal compliance.

• True
• False

Which of the following is true in the context of standardization of a franchise?

• It inhibits the growth of the business in international and multi-cultural context
• The firm must have a set of procedure and well defined way of carrying out its business.
• Its rigidity allows franchisors to implement the system with more consistency
• It allows the franchisees to tailor the offerings to meet the local requirements

The franchise should have better prospects for future expansion in order to make it offer more attractive and marketable. In order to do so, the franchisor should

• Do all the above as shown in (A), (B), and (C) above
• Work out a schedule of entering different geographic locations
• Clearly identify the market potential
• Identify core locations and peripheral locations in order to set the priority of market entry

The standardization of the product/service offerings and other related areas help the franchisees maintain uniformity of operation across the system and consistency in the quality of service being provided by the franchisors.

• True
• False

Franchisors must satisfy themselves of having the presence of flexibility in its business and franchise system so as to enable both the franchisor and franchisee to customize their product offering to suit the taste and preference of the local market

• True
• False

A potential franchisee should ask legal contract related questions to assess the potential of a franchise. The question include;

• What is the setting up and business acquisition cost?
• What is the business running cost?
• Whether the Franchisor finances fully or partially?
• Whether the territory of operation exclusive or non-exclusive?

Advance ruling on Taxation - if a foreign Master Franchisor has any apprehensions or uncertainties regarding the tax implications of any venture or transaction.

• True
• False

· Legal Contract Related Questions includes;

• None of the choices
• A,B,C, and D
• A Only
• Both A and B

Franchisee is granted by the franchisor the right to carry on business using the franchisors know how under the franchisors brand.

• True
• False

_____ or gross profit the amount of net sales minus cost of goods sold gives a figure of margin. This is an important component of financial analysis. The amount of margin should be capable of covering the operating expenses and leave sufficient scope for net profit.

• Margin

It is said that something that cannot be measured cannot be managed

• True
• False

A franchisor should not consider the impact of investments, cash flows and profits will have on the franchisor and the franchisees

• True
• False

A potential franchisee should carry out an industry analysis and should also know the players in that industrythat are going through the franchising route

• True
• False

A potential franchisee should ask finance related questions to assess the potential of a franchise. The question include;

• the future expansion plan of the franchisor
• What is the setting up and business acquisition cost?
• What is the market position
• the way in which the franchise is exactly being operated

A franchise need not have immediate economic benefits for it to be valuable

• True
• False

The longer the time required in transferring the knowledge pertaining to carrying out the business, the more the acceptability of the system

• True
• False

Franchisees prefer a franchise system that

• is more complex because it is more profitable
• involves extensive training of manpower
• is simpler and takes little time to learn
• is more complex and takes longer to learn through the transfer the knowledge

Some of the modes of international franchising include

• Master franchise agreement
• All of the choices
• Direct franchising
• Area development agreement

During an interview with a franchisor, a potential franchisee should ask several relevant questions. Some of the marketing related questions include

• What is the size of the local market?
• None of the Choices
• What is the market position of the franchisor vis-à-vis rival firms?
• Both A and B

Potential franchisors should also assess the impact of technological development on the growth potential of the business and should consider the vulnerability of their business to technological advancements.

• True
• False

A firm that has a proven track record or running a chain of stores using the same name, more or less the same look at the same methods of operation is a sure shot franchisable business.

• True
• False

A franchisor should be aware of the competition both at the franchise level and also at the consumer level.

• True
• False

Some of the benefits of starting a new entrepreneurial venture over doing doing business through franchsing include:

• More scope for future growth
• A lot of freedom to choose location of doing business and decide all other aspects of business
• A lot of freedom to try out new ideas
• All of the choices

_____ measures the financial power of a franchisee and shows a relationship between debt and equity as well as between total assets and net worth of a franchisee.

• Leverage ratio

The franchisee is not completely independent. Franchisees are required to operate their businesses according to the procedures and restrictions set forth by the franchisor in the franchise agreement.

• True
• False