Exam 15: Franchising

The Franchise Disclosure Document contains a total of 23 categories of information that give a prospective franchisee a broad base of information about the background and financial health of the franchisor.

________ is a form of business ownership in which a firm that already has a successful product or service licenses its trademark and method of doing business to other business in exchange for an initial franchise fee and an ongoing royalty.

According to the textbook, a franchisee's weekly or monthly royalty fees are typically around ________ of gross income.

When is franchising appropriate (from the business owner's point of view)? Provide an example of when franchising is appropriate and when it is inappropriate.

The FDD contains ________ categories of information.

Franchisors are required by law to disclose all their costs in a document called the Franchise Disclosure Document.

Which of the following is not an advantage of buying a franchise?

A ________ franchise is an arrangement under which the franchisor grants to the franchisee the right to buy its products and use its trade name.

Which of the following statements is incorrect regarding franchising?

Because franchisees put their personal capital at risk, they are highly motivated to make their franchise outlets successful. According to the textbook, this advantage of franchising a business is referred to as:

According to a concept called ________ theory, it is more effective for the units of a growing chain to be run by franchisees than by managers, because managers are usually paid a salary and may not be as committed to the success of their individual units as franchisees, who are in effect the owners of the units they manage.

List and explain three of the common misconceptions about franchising.

The primary disadvantage of franchising is that an organization allows others to profit from its trademark and business method.

In the majority of cases, a franchisee pays a royalty based on a percentage of weekly or monthly net income.

Target is an example of an organization that is perfectly suited for franchising, but it doesn't franchise.