BAMM6002 Franchising
| Risk Premium | This is the ended amount of return that investors demand the assumption of risk. | |
| Net Sales | is the revenue earned by franchisee during a financial year. An | |
| TRUE | The firm must have a set procedure and a well-defined way of carrying out its business. | |
| TRUE | Advance tax has to be paid by both, indian and foreign corporate assesses, whose taxable income exceeds Rs. 5000/-p.a | |
| TRUE | A potential franchisee should carry out self-assessment and determine whether he/she has the qualities to run a franchise successfully. | |
| Federal Trade Commission Rules on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (1979) | 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 | |
| Its rigidity allows franchisors to implement the system with more consistency. | Which of the following is true in the context of standardization of a franchise? | |
| Uniform Franchise Offering Circular | UFOC stands for: | |
| Independent business operator to convert to the form of an existing franchise system | A recent development in the system of franchising known as conversion involves | |
| none of the above | It is essential to design a prototype of the ,business that is to be franchised because | |
| Cost of entry and cost of operation | Financial requirements for a franchise business include: | |
| All of the choices | Some of the benefits of starting a new entrepreneurial venture over doing doing business through franchsing include: | |
| Margin | 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. | |
| All the conditions show as (A), (B), and (C) above are fulfilled | The firms willing to expand and grow through franchising must ensure that | |
| All of the above | Franchisor should develop a list of criteria to evaluate the potential franchisees. This should include | |
| FALSE | The longer the time required in transferring the knowledge pertaining to carrying out the business, the more the acceptability of the system | |
| TRUE | 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. | |
| Who owns business concept, brand and grants the franchisee the right to do business under their trademark or trade name. | A franchisor is a one | |
| Royalty | _________________ the regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales | |
| 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 | The management of the firm willing to grow through franchising should develop distinct management competence, | |
| TRUE | Advance ruling on Taxation - if a foreign Master Franchisor has any apprehensions or uncertainties regarding the tax implications of any venture or transaction. | |
| Wholesaler sponsored group retailers | ________________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. | |
| All of the choices | Some of the modes of international franchising include | |
| All of the above. | Which of the following is true in case of franchising? | |
| Analysis of industry economic traits, key driving forces, strategic group mapping, and industry key success factors | A potential franchisee can begin with an industry analysis in order to assess the attractiveness of a franchise. The industry analysis should include; | |
| TRUE | 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. | |
| Creating another format to retail either the same or different merchandise to the same or different shoppers | Product development known as Format Development strategy adopted by the retailers as a strategy to grow involves | |
| Who owns business concept, brand and grants franchisees to the third parties | A franchisor is a one | |
| none of the above | It is essential to design a prototype of the, business that is to be franchised because | |
| TRUE | The franchising agreement, in most cases, clearly indicate system, procedures, and methods of managing the resources. | |
| 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 | A franchisee is a one | |
| TRUE | 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 | A franchise need not have immediate economic benefits for it to be valuable | |
| TRUE | 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 | At least part of any real estate owned by the master franchisee / developer / franchisee used in the business may also have to be transferred. | |
| Net Cash Flow | It takes into account costs of doing business as well as additional capital investment needed to sustain the cash flow | |
| the new guidelines published by Japan Fair Trade Commissions in April 2002 | In Japan, the franchising is regulated under: | |
| 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 | |
| Arrears | 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 | |
| TRUE | There are no specific laws that govern franchising in India | |
| TRUE | franchisee simply sells the franchisor’s products without using the franchisor’s method of conducting business. | |
| Leverage ratio | 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. | |
| Federal Trade Commission Rules on Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures (1979) | 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: | |
| TRUE | Business is a very complex system and clarity may not prevail at all the aspects of business | |
| TRUE | An Existing Franchise available on Resale offers an assurance that a business is up and running | |
| Net Worth | the net worth of a franchisee is an arithmetic difference between total assets held by a franchise and total liabilities of a franchisee. | |
| TRUE | Research on the franchisor is a must for the success | |
| All of the choices | Some important changes in the business environment that cause retailers to become multi-format retailers include | |
| All of the above | Which of the following is true in the context of fees charged by franchisors to its franchisees? | |
| TRUE | Direct Franchisingthe 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 | |
| Traditional sources | sources of the fund include bank and financial institutions and | |
| market development | 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 | |
| TRUE | Setting up a franchise involves complying with multiple legal requirements. | |
| 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 | According to International Franchise Association, franchising defined as; | |
| TRUE | A well-developed franchise system also provides for managerial approach to accounting, and use of information technology to support an organizational MIS. | |
| The franchisor permits the franchisee gets to use the products, services, trade name, trademark and the complete or entire method to operate the business itself or the, including the detailed marketing plan and operations manuals | Business format franchising involves | |
| All of the choices | What business qualification does McDonald’s seek in its potential franchisees? | |
| TRUE | A complex business model requiring a considerable amount of time for learning might be considered unfavorable by the potential franchisees | |
| All of the above | Market development as a strategic option involves | |
| Net Profit | is the portion of gross profit remaining after providing for sales-related expenses, depreciation and tax | |
| Ability to Perform without Supervision | 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 | |
| TRUE | A franchisor should anticipate probable source of conflicts between the franchisor and the franchisees and devise strategies to resolve them | |
| Net worth | also known as owners equity and indicates the value of a business after providing for all the financial obligations. | |
| Market penetration | Some retailers prefer to achieve growth with the help of existing products offerings in the existing market. This strategy is known as | |
| TRUE | 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 | |
| the way in which the franchise is exactly being operated | By meeting existing franchisees, a potential franchisee can obtain a fairly good idea about | |
| it has a proven business model since it is operating a chain of restaurants for more than two decades | Recently, – a chain of restaurant serving South Indian dishes is planning to grow through franchising. It has more chances of being a successful franchisor because, | |
| TRUE | The existing Franchise could inherit problems such as employees with low commitment, pricing issues, poor procedures, an sometimes legal liabilities. | |
| TRUE | A potential franchisee should meet existing franchisees, if possible, in order to know the intricacies of the business from the most authentic source. | |
| All of the choices | A potential franchisee should ask market and marketing related questions to assess the potential of a franchise. The question include; | |
| TRUE | 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. | |
| FALSE | A franchisor should not consider the impact of investments, cash flows and profits will have on the franchisor and the franchisees | |
| TRUE | 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 | |
| FALSE | 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. | |
| Franchises | is a contractual arrangement of franchisor, a parent company and an individual, it allows the franchisee to run the business under the firms banner. | |
| Both A and B | A fully integrated vertical marketing system develops when | |
| Creating another format to retail either the same or different merchandise to the same or different shoppers | Product development – also known as format development – adopted by the retailers as a strategy to grow involves | |
| None of the choices | A potential franchisee should ask general related questions to assess the potential of a franchise. The question include; | |
| The firm must have a set of procedure and well defined way of carrying out its business. | Which of the following is true in the context of standardization of a franchise? | |
| TRUE | 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 | |
| A,B,C, and D | · | |
| A, B, C and D | A. Is the franchisor member of the Franchise Association of India? | |
| TRUE | In order to measure financial performance, four dimensions such as: | |
| net cash flow | The ______________________ represents the economic benefits derived from the ownership of the franchise. | |
| TRUE | 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 | It is said that something that cannot be measured cannot be managed | |
| All of the above | Some of the specific approaches to market development strategy are | |
| Assets | these are the items owned by a franchisee that has the same monetary value. | |
| TRUE | 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 | Risk Premium is the ended amount of return that investors demand for the assumption of risk | |
| TRUE | A franchisor should determine whether the kind of investment the franchise system requires shall be fulfilled by the potential franchisee | |
| Ensure that the financial goals of the self (franchisor) as well as that of the franchisees are fulfilled simultaneously | While setting appropriate fees to be charged from the franchisees, a franchisor should | |
| TRUE | Major liability of a franchisee is the long term loan obtained from bank or financial institution or sometimes from the franchisor. | |
| all of the above | Some important changes in the business environment that cause retailers to become multi-format retailers include | |
| Realism, Resources, Research, and resolve | The right combination of four R's potential franchisee's must have; | |
| It is a strategy of expanding the product basket in order to claim more share of the wallet of the shoppers. | Which of the following statements is true in a situation when a retailer attempts to pursue a format development strategy? | |
| FALSE | It is not important for the potential franchisor to ascertain whether the product or service that is offered has sustainable growth potential. | |
| TRUE | . Liquidity represents the difficulty with which an investment can quickly be converted into cash. | |
| What is the setting up and business acquisition cost? | A potential franchisee should ask finance related questions to assess the potential of a franchise. The question include; | |
| An organizational arrangement in which franchisors grant franchisees the right to own and operate more than one unit in the same franchise system | Multiple-unit franchising refers to | |
| TRUE | Termination is generally resulted from breach of the franchising agreement. I | |
| FALSE | 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. | |
| All of the above | Which of the following is true in the context of fees charged by franchisors to its franchisees? | |
| TRUE | A potential franchisee should carry out an industry analysis and should also know the players in that industrythat are going through the franchising route | |
| What is the market position of the franchisor vis-à-vis rival firms? | During an interview with a franchisor, a potential franchisee should ask several relevant questions. Some of the marketing related questions include | |
| 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 | Business format franchising involves | |
| Trademark | The franchisor’s identifying marks, brand names, and a logo that are licensed to the franchisee. | |
| TRUE | A new franchise the franchisors offers assistance in the pre-start up stage | |
| TRUE | A franchisor should be aware of the competition both at the franchise level and also at the consumer level. | |
| TRUE | It is important to know the local sale tax, property tax, and withholding tax applicable in certain area. | |
| All of the above | Which of the following is true about related-area diversification followed by retailers? | |
| TRUE | Overall a new Franchise is low risk of doing the business with an ease to obtain finance. | |
| is simpler and takes little time to learn | Franchisees prefer a franchise system that | |
| Do all the above as shown in (A), (B), and (C) above | 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 | |
| Profitability ratio | measures profitability of a franchise business. | |
| both (A) & (B) | Some of the specific approaches to market development strategy are | |
| Whether the territory of operation exclusive or non-exclusive? | A potential franchisee should ask legal contract related questions to assess the potential of a franchise. The question include; | |
| TRUE | The less the time required in transferring the knowledge pertaining to carrying out the business, the more the acceptability of the system | |
| Liquidity ratio | measures the franchisee’s abilities to meet short term liabilities of the business. | |
| TRUE | An Existing Franchise available on Resale could be costly to buy an existing franchise | |
| TRUE | It is always advisable to solicit expert advice of competent legal advisors for different types of legal compliance. | |
| 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. | The management of the firm willing to grow through franchising should develop distinct management competence | |
| TRUE | A franchisor should identify the core locations and peripheral locations in order to set the priority of market entry. | |
| Retailer owned cooperatives | ________________________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 | |
| Ensure that the financial goals of the self (franchisor) as well as that of the franchisees are fulfilled simultaneously | While setting appropriate fees to be charged from the franchisees, a franchisor should | |
| TRUE | 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. | |
| FALSE | 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. | |
| Operating Expenses | allthose costs a franchisee has to incur in operating a franchise business | |
| Growth Orientation | A franchise should have a long-term rather than a short-term profit orientation | |
| All the conditions show as (A), (B), and (C) above are fulfilled | The firms willing to expand and grow through franchising must ensure that | |
| Do all the above as shown in (A), (B), and (C) above | 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 | |
| Activity ratio | measures the operational efficiency of a business. It usually measures performance of fixed assets and current assets of a firm. | |
| is simpler and takes little time to learn | Franchisees prefer a franchise system that | |
| Store clustering | Starbucks penetrated market for coffee beverages in the US using a concept called | |
| All of the above. | The key attractions for a franchisor to grow through franchising are | |
| TRUE | 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. | |
| Uniform Franchise Offering Circular | 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: | |
| TRUE | 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 | |
| Who has been granted the rights to conduct business using franchisor's know-how, franchisor's brand, and under the system of the franchisor | A franchisee is a one | |
| Franchise Agreement | The legal written contract between the franchisor and franchisee which tells each party what each is supposed to do | |
| FALSE | A franchisee, as a part of the franchise development process, has to develop criteria for the assessment of a potential franchisor. | |
| Cost of Goods Sold | 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 | |
| TRUE | The cost of entering a new franchisee | |
| Liabilities | these are the financial obligations of a franchisee that arise during the conduct of the business. | |
| A,B,C, and D | Legal Contract Related Questions includes; A. Whether the territory of operation exclusive or non-exclusive? B. What is the length of the contract? C. What is the consideration in renewal? D. What extra cost one has to pay for the renewal? | |
| All of the above | Franchisor should develop a list of criteria to evaluate the potential franchisees. This should include | |
| Multiple-unit franchising | 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 | |
| It is a strategy of expanding the product basket in order to claim more share of the wallet of the shoppers | Which of the following statements is true in a situation when a retailer attempts to pursue a format development strategy? | |
| it has a proven business model since it is operating a chain of restaurants for more than two decades | Recently, – a chain of restaurant serving South Indian dishes is planning to grow through franchising. It has more chances of being a successful franchisor because | |
| Real Interest | _______________________ this represents the component of return from an investment with sacrificing alternative use of the invested funds. | |
| TRUE | The net cash flow represents the economic benefits derived from the ownership of the franchise. | |
| TRUE | 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. | |
| A, B, C, and D | · | |
| the Measures for Regulation of Commercial Franchises | The Peoples Republic of China governs franchising under | |
| TRUE | A new franchise has proven methods of doing business and a well-established brand reputation | |
| TRUE | A franchisee should have an internal locus of control | |
| Uniform Franchise Offering Circular | UFOC stands for | |
| TRUE | Starting a new business offers a high degree of freedom to the entrepreneur, as compared to doing a business as a franchisee | |
| TRUE | 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 | |
| Retailer owned cooperatives | ________________________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 | |
| TRUE | 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 | |
| the norms laid down by the British Franchise Association | In the United Kingdom, the franchisor-franchisee relationship is governed by: | |
| All of the above | Which of the following is true in case of franchising? | |
| TRUE | 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 | 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 | Comparable Value Method market value can be transaction based or security price based. | |
| Who owns business concept, brand and grants the franchisee the right to do business under their trademark or trade name. | A franchisor is a one | |
| distributing or retailing products that are traditionally manufactured by the franchisor. | Traditional or product format franchising is all about | |
| TRUE | 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 | The right combination of four R's potential franchisee's must-have, Realism, Resources, Research, and Resolve. | |
| A, B, C and D | A. What is the current market size of the franchisor? | |
| TRUE | Cost Method approach focuses upon the cost creating an economically equivalent substitute, i;e replacement value. | |
| TRUE | 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. | |
| North American Security Administration Association | NASSA stands for: | |
| TRUE | 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. | |
| Area development agreement | ________________________under this agreement, the franchisor grants the franchisee the right to operate several or multiple franchised businesses within the geographical area. |