Franchising as a Growth Strategy
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Questions and Answers

What is refranchising?

  • Marketing a business for sale
  • Selling company-owned stores to franchisees (correct)
  • Closing down unprofitable business locations
  • Buying an existing business
  • What is one of the advantages of buying an existing business?

  • Lower startup costs
  • Access to new markets
  • Guarantees a job (correct)
  • Complete control over business operations
  • What is a turnkey business?

  • A business that can be purchased without changing its model and products (correct)
  • A business that is being sold by its original owner
  • A business that requires significant renovations
  • A business that is heavily in debt
  • What is one of the methods for determining the value of a business?

    <p>Review of financial statements</p> Signup and view all the answers

    What is one of the advantages of buying an existing business?

    <p>Increase experience</p> Signup and view all the answers

    What is one of the steps involved in buying an existing business?

    <p>Negotiating the deal</p> Signup and view all the answers

    What is a key consideration when creating a successful franchise operation?

    <p>Developing a unique concept</p> Signup and view all the answers

    What is the primary purpose of a Partnership Agreement?

    <p>To outline the terms of ownership</p> Signup and view all the answers

    What is one of the benefits of buying an existing business?

    <p>Business continues to be successful</p> Signup and view all the answers

    What is one of the advantages of buying an existing business?

    <p>Easier access to financing</p> Signup and view all the answers

    What is a characteristic of a Limited Liability Partnership?

    <p>One or more general partners and one or more limited partners</p> Signup and view all the answers

    What is the main advantage of a franchise arrangement?

    <p>The franchisee benefits from the franchisor's brand recognition and support</p> Signup and view all the answers

    What is the purpose of the Uniform Partnership Act?

    <p>To arrange the law of dealing with partnerships in the US</p> Signup and view all the answers

    What is a key characteristic of a corporation?

    <p>It is a legal entity created by the state</p> Signup and view all the answers

    What is the primary purpose of an S Corporation?

    <p>To offer tax benefits</p> Signup and view all the answers

    What is a key feature of a master franchise arrangement?

    <p>It is a good option in international markets</p> Signup and view all the answers

    What is the main objective of the Discounted Future Earnings Approach (DFEA)?

    <p>To estimate the net income for several years</p> Signup and view all the answers

    Which of the following is a disadvantage of the Capitalized Earnings Approach?

    <p>It is difficult to find similar companies for comparison</p> Signup and view all the answers

    What is the purpose of the fifth step in the Discounted Future Earnings Approach (DFEA)?

    <p>To compute the total value of the business</p> Signup and view all the answers

    What is the main goal of the buyer in a business negotiation?

    <p>To buy at the lowest price</p> Signup and view all the answers

    Which of the following is NOT a step in the Discounted Future Earnings Approach (DFEA)?

    <p>Calculate the risk level of the company</p> Signup and view all the answers

    What is the main goal of the seller in a business negotiation?

    <p>To maximize cash from the deal</p> Signup and view all the answers

    Which of the following approaches estimates goodwill by calculating opportunity costs, extra earning power, and tangible net worth?

    <p>Excess Earnings Method</p> Signup and view all the answers

    What is the purpose of the present value factor in the Discounted Future Earnings Approach (DFEA)?

    <p>To discount the future earnings to find the present value</p> Signup and view all the answers

    What is the primary objective of preparing an advertising budget?

    <p>To determine what is affordable</p> Signup and view all the answers

    What type of advertising technique involves sharing the cost of advertising with the retailer?

    <p>Shared advertising</p> Signup and view all the answers

    What is the term for the area between the price ceiling and price floor?

    <p>Price range</p> Signup and view all the answers

    What is the term for advertising that is concentrated when customers are most likely to buy?

    <p>Pulsing</p> Signup and view all the answers

    What is the primary goal of selecting advertising media?

    <p>To target a specific demographic</p> Signup and view all the answers

    What is the term for a group of businesses that produce ads?

    <p>Advertising cooperative</p> Signup and view all the answers

    What is the term for innovative ads located in unexpected areas?

    <p>Stealth advertising</p> Signup and view all the answers

    What is the primary goal of raising prices incrementally?

    <p>To communicate with customers</p> Signup and view all the answers

    What is the primary purpose of a balance sheet?

    <p>To estimate a firm's worth on a specific date</p> Signup and view all the answers

    What is the relationship between assets, liabilities, and owner's equity?

    <p>Assets = Liabilities + Owner's Equity</p> Signup and view all the answers

    What type of asset is a patent?

    <p>Intangible asset</p> Signup and view all the answers

    What is the purpose of a cash budget?

    <p>To manage a firm's cash flow</p> Signup and view all the answers

    What is the term for the owner's claim on a business's assets?

    <p>Owner's equity</p> Signup and view all the answers

    What is the difference between current and long-term liabilities?

    <p>Current liabilities are short-term, while long-term liabilities are long-term</p> Signup and view all the answers

    What is the purpose of the 'Big Three' of cash management?

    <p>To manage a firm's cash flow</p> Signup and view all the answers

    What is bootstrapping in the context of cash management?

    <p>Avoiding debt to finance a business</p> Signup and view all the answers

    What is one of the techniques for identifying business opportunities?

    <p>Take a new twist on an existing idea</p> Signup and view all the answers

    What is one of the benefits of owning a small business?

    <p>Reap profits</p> Signup and view all the answers

    What is one of the drawbacks of becoming an entrepreneur?

    <p>Risk of losing whole capital</p> Signup and view all the answers

    What is one of the top reasons businesses fail?

    <p>Lack of planning</p> Signup and view all the answers

    What is one of the factors that led to the age of entrepreneurship?

    <p>Shift to service economy</p> Signup and view all the answers

    What is an important aspect of identifying business opportunities?

    <p>Noticing what is missing in the market</p> Signup and view all the answers

    What is a common characteristic of entrepreneurs?

    <p>Creativity</p> Signup and view all the answers

    What is a key aspect of entrepreneurship?

    <p>Taking calculated risks</p> Signup and view all the answers

    What is the primary consideration for an entrepreneur when choosing a form of ownership?

    <p>All of the above</p> Signup and view all the answers

    What is the main characteristic of a sole proprietorship?

    <p>The owner makes decisions alone</p> Signup and view all the answers

    What is the primary advantage of a sole proprietorship?

    <p>Low cost to establish</p> Signup and view all the answers

    What is the main disadvantage of a sole proprietorship?

    <p>Lack of business continuity</p> Signup and view all the answers

    What is the primary purpose of a partnership agreement?

    <p>To establish the partnership</p> Signup and view all the answers

    What is the main advantage of a partnership?

    <p>Larger capital</p> Signup and view all the answers

    What is the primary disadvantage of a partnership?

    <p>Authority conflicts</p> Signup and view all the answers

    What is the key difference between a sole proprietorship and a partnership?

    <p>Number of owners</p> Signup and view all the answers

    What is the primary goal of an Employee Stock Ownership Plan (ESOP)?

    <p>To allow employees to earn a part or the whole company</p> Signup and view all the answers

    What is the purpose of due diligence?

    <p>To investigate and review information about attractive business candidates</p> Signup and view all the answers

    What is the primary purpose of a balance sheet?

    <p>To provide a clear picture of a company's financial situation</p> Signup and view all the answers

    What is the main objective of the seller in a business negotiation?

    <p>To get the best possible price for the business</p> Signup and view all the answers

    What is the term for the process of adjusting a company's value?

    <p>Adjusted balance sheet</p> Signup and view all the answers

    What is the primary goal of communicating with employees during a business transition?

    <p>To ensure a smooth transition</p> Signup and view all the answers

    What is the purpose of listening to employees during a business transition?

    <p>To ensure a smooth transition</p> Signup and view all the answers

    What is the primary goal of talking about the vision with stakeholders during a business transition?

    <p>To communicate the new vision</p> Signup and view all the answers

    What is the primary purpose of the Franchise Disclosure Document (FDD)?

    <p>To disclose information about the franchise to potential buyers</p> Signup and view all the answers

    What is a key consideration when evaluating a franchise opportunity?

    <p>The level of support provided by the franchisor</p> Signup and view all the answers

    What is the primary advantage of buying an existing franchise?

    <p>Established customer base</p> Signup and view all the answers

    What is the typical provision in a franchise agreement regarding termination?

    <p>Franchisors can terminate the agreement with or without cause</p> Signup and view all the answers

    What is the purpose of the seventh step in the process of buying a franchise?

    <p>To make a final decision regarding the franchise opportunity</p> Signup and view all the answers

    What is the primary characteristic of area development in franchising?

    <p>It offers exclusive rights to a specific geographic area</p> Signup and view all the answers

    What is the main advantage of conversion franchising?

    <p>It provides instant name recognition</p> Signup and view all the answers

    What is the primary purpose of the rights and obligations outlined in a franchise agreement?

    <p>To govern the franchisor-franchisee relationship</p> Signup and view all the answers

    What is the primary purpose of asking core questions to all candidates during an interview?

    <p>To ensure consistency in the hiring process</p> Signup and view all the answers

    What is the main goal of building an organizational culture?

    <p>To allow employees to reach their full potential</p> Signup and view all the answers

    What is the primary reason for not relying on candidates' self-descriptions during the hiring process?

    <p>To avoid inconsistent and evidence-based selection process</p> Signup and view all the answers

    What is the main objective of motivating workers in an organization?

    <p>To increase employee productivity</p> Signup and view all the answers

    What is the primary purpose of sponsoring a 'job shadowing' program for students?

    <p>To provide students with real-world work experience</p> Signup and view all the answers

    What makes a test valid?

    <p>It measures what it is intended to measure</p> Signup and view all the answers

    What is the main goal of creating an environment of trust in an organization?

    <p>To communicate the company's values and vision</p> Signup and view all the answers

    What is the primary purpose of communicating the company's values and vision?

    <p>To create an environment of trust and motivation</p> Signup and view all the answers

    Study Notes

    Master Franchising and Cobranding

    • Master franchising can be a good option in international markets
    • Cobranding involves teaming up with complementary products or services, serving dual-career couples and aging baby boomers

    Strategies for a Successful Franchise Operation

    • A unique concept is needed to create a successful franchise operation
    • The concept must be replicable
    • Expansion plans are necessary
    • Legal guidance is required

    Types of Business Ownership

    Sole Proprietorship

    • The owner makes decisions alone
    • The owner has unlimited personal liability

    Partnership

    • An association of multiple people who own a business together to make a profit
    • A partnership agreement states the terms of ownership to protect the rights of each owner
    • The Uniform Partnership Act arranges the law of dealing with partnerships in the US

    Limited Partnerships

    • One or more general partners and one or more limited partners
    • Limited Liability Partnerships (LLPs) are a type of limited partnership where all partners are limited partners

    Corporation

    • A legal entity created by the state that can sue or be sued in its name, enforce contracts, transfer property, and can be liable if it violates the law
    • An S-Corporation is a type of corporation made for tax purposes
    • A Limited Liability Corporation (LLC) is an S-Corporation but is not subject to the same restrictions

    Franchising

    • Semi-independent owners pay fees to a company for the right to sell its products and services under the franchiser's trade name
    • Refranchising involves reducing the number of company-owned stores

    Buying an Existing Business

    • Advantages include business continuity, guaranteed job, easier access to financing, increased experience, and the ability to purchase without changing the business model and products
    • Methods for determining the value of a business include:
      • Variation 1: Excess Earnings Method, which estimates goodwill and calculates opportunity costs, extra earning power, and tangible net worth
      • Variation 2: Capitalized Earnings Approach, which calculates risk level
      • Variation 3: Discounted Future Earnings Approach (DFEA), which estimates net income for several years and discounts the future earnings using the present value factor

    Negotiating the Deal

    • Tips for negotiating include:
      • Developing a negotiating strategy
      • Focusing on the issue, not the person
      • Being a good listener
      • Being patient and flexible
    • Seller goals include:
      • Getting the highest price
      • Minimizing tax burden
      • Maximizing cash from the deal
      • Avoiding unreasonable contract terms
    • Buyer goals include:
      • Buying at the lowest price
      • Negotiating a favorable price
      • Avoiding the seller competing against them
      • Minimizing payment upfront

    Advertising on a Small Budget

    • Selecting advertising media options include:
      • Email
      • Social media
      • TV
      • Radio
      • Newspaper/magazine
      • Word-of-mouth
    • Preparing an advertising budget involves:
      • Determining what is affordable
      • Matching competitor's ad expenditures
      • Using percentage of sales (past or future)
      • Objective-and-task method
    • Advertising strategies include:
      • Comparative advertising
      • Shared advertising
      • Stealth advertising
      • Repeating successful ads
      • Concentrating advertising when customers are most likely to buy

    Pricing Strategies

    • The price range is the area between the price ceiling and price floor
    • Communicating with customers and raising prices incrementally are important pricing strategies

    Identifying Business Opportunities

    • Techniques for identifying business opportunities include:
      • Taking different approaches to a market
      • Looking for creative ways to use existing resources
      • Putting a new twist on an old idea
      • Monitoring trends
      • Realizing that all face the same problems
      • Noticing what is missing in the market

    Benefits of Owning a Small Business

    • Benefits of owning a small business include:
      • Control over one's destiny
      • Making a difference
      • Contributing to society
      • Reaching full potential
      • Reaping profits
      • Doing what one enjoys

    Drawbacks of Entrepreneurship

    • Drawbacks of becoming an entrepreneur include:
      • Uncertainty of income
      • Risk of losing whole capital
      • Long working hours
      • Low quality of life at the beginning
      • High levels of stress
      • Complete responsibility
      • Discouragement

    Top 5 Reasons Businesses Fail

    • Top 5 reasons businesses fail include:
      • Bad location
      • Insufficient capital
      • Lack of experience
      • Poor inventory control
      • Lack of planning

    Factors Leading to Entrepreneurship

    • Factors that led to the age of entrepreneurship include:
      • Shift to service economy

    Choosing a Form of Ownership

    • Issues to consider when choosing the form of ownership include:
      • Control
      • Managerial ability
      • Business goal
      • Taxes consideration

    Sole Proprietorship

    • Definition: ownership where the owner makes decisions alone
    • Advantages:
      • Simple to create
      • Low cost to establish
      • Encourages profits
      • Only one to make decisions
      • No legal restrictions
      • Easy to stop and terminate
    • Disadvantages:
      • Limited access to capital
      • Limited abilities and skills
      • Feelings of isolation
      • Lack of business continuity

    Partnership and Corporation

    • Partnership definition: association of multiple people who own a business together to make profit
    • Advantages:
      • Easy to establish
      • Larger capital
      • Strict operations
    • Disadvantages:
      • Authority conflicts
      • Partners are bound by the laws

    Franchising and the Law

    • Franchise disclosure document (FDD) must be presented before any offer or sale
    • FDD must be written in English and contains information such as:
      • Business experience
      • Franchise fees and costs
      • Lawsuits involving the franchisor

    The Right Way to Buy a Franchise

    • 7 steps to buying a franchise:
      • Evaluate yourself
      • Research market
      • Consider options
      • Get a copy of FDD and study it
      • Talk to existing franchisees
      • Ask franchisors questions
      • Make your choice

    Franchise Contracts

    • Govern the franchisor-franchisee relationship
    • Example: rights and obligations
    • Termination: franchisors can terminate “with or without cause” while franchisees can’t
    • Renewal: franchisors usually have the right to renew or refuse contract renewal
    • Transfer and buybacks: franchisees are usually not free to sell their business without approval
    • Trends in franchising include:
      • Smaller, nontraditional locations
      • Conversion franchising: offers instant name recognition
      • Refranchising: reducing the number of company-owned stores
      • Area development: offers exclusive rights to an area
      • Employee Stock Ownership Plan (ESOP): a plan in which employees earn a part or the whole company

    Due Diligence

    • Definition: investigating, studying, reviewing, and verifying relevant information concerning the most attractive business candidates in greater detail
    • Process involves:
      • Adjusted balance sheet technique: a realistic method to determine a company’s value
      • Employee Stock Ownership Plan (ESOP): a plan in which employees earn a part or the whole company

    New Business Planning Process

    • Conducting a feasibility analysis and crafting a winning business plan
    • Elements of a business plan:
      • What lenders and investors look for in a business plan
    • The pitch: making the business plan presentation

    The Entrepreneur’s Role as Leader

    • 4 vital tasks:
      • Hire the right employees and constantly improve their skills
      • Build an organizational culture that allows one to reach potential
      • Communicate the values and vision of the company and create an environment of trust
      • Motivate workers

    Hiring the Right Employees

    • Poor hiring practices:
      • Trusting candidates' self-descriptions rather than testing them
      • Inconsistent, evidence-based selection process
      • Not explaining the jobs they're hiring for
      • Send recruiters to college students
    • Creative recruiting techniques:
      • Sponsoring a "job shadowing" program for students
      • Invite college seniors to a company tailgate at a sports event
      • Host job fairs

    Valid and Reliable Tests

    • Definition: a test that measures what it is intended to measure
    • Reliable test: a test that measures consistently over time

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    Description

    This quiz covers franchising strategies, including master franchising, cobranding, and serving specific demographics, as well as the elements needed to create a successful franchise operation.

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