Franchising

 

BAMM6002 Franchising






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

Net Salesis the revenue earned by franchisee during a financial year. An

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

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

TRUEA 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 CircularUFOC 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 aboveIt is essential to design a prototype of the ,business that is to be
franchised because

Cost of entry and cost of operationFinancial requirements for a franchise business include:

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

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

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

TRUEPotential 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,

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

TRUEA 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 shoppersProduct 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 aboveIt is essential to design a prototype of the, business that is to be franchised because

TRUEThe 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

TRUEMaster 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.

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

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

TRUEAt 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 FlowIt 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 2002In Japan, the franchising is regulated under:

FALSEA 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

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

TRUEThere are no specific laws that govern franchising in India

TRUEfranchisee simply sells the franchisor’s
products without using the franchisor’s method of conducting business.

Leverage ratiomeasures 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:

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

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

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

TRUEResearch on the franchisor is a must for the success

All of the choicesSome important changes in the business environment that cause retailers to become multi-format retailers include

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

TRUEDirect 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 sourcessources 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

TRUESetting 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;

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

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

Ability to Perform without SupervisionA 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

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

Net worthalso 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

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

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

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

TRUEThe 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.

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

TRUEFranchisee’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

FALSEThe 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.

Franchisesis 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 BA 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 choicesA 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?

TRUEIf 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 DA. Is the franchisor member of the Franchise Association of India?

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

net cash flowThe ______________________ represents the economic benefits derived from the ownership of the franchise.

TRUEThe 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.

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

All of the aboveSome
of the specific approaches to market development strategy are

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

TRUEThe 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.

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

TRUEA 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

TRUEMajor 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 resolveThe 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?

FALSEIt 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

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

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

TRUEA 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

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

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

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

TRUEIt 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?

TRUEOverall 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) aboveThe 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 ratiomeasures 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;

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

Liquidity ratiomeasures the franchisee’s abilities to meet short term liabilities of the business.

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

TRUEIt 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

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

TRUEIt 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.

FALSEPotential 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 Expensesallthose costs a franchisee has to incur in operating a franchise business

Growth OrientationA 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) aboveThe 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 ratiomeasures 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 learnFranchisees 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

TRUEA 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 CircularThe 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:

TRUEThe 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 franchisorA franchisee is a one

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

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

Cost of Goods Soldis 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

TRUEThe cost of entering a new franchisee

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

A,B,C, and DLegal 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 aboveFranchisor 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.

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

TRUEIn 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 FranchisesThe Peoples Republic of China governs franchising under

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

TRUEA franchisee should have an internal locus of control

Uniform Franchise Offering CircularUFOC stands for

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

TRUEIt 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

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

All
of the above
Which
of the following is true in case of franchising?

TRUEWhatever 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.

TRUEA 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.

TRUEComparable 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

TRUEA 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

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

A, B, C and DA. What is the current market size of the franchisor?

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

TRUEHigher 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 AssociationNASSA stands for:

TRUEA 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.