Deck 5: Becoming the Owner of a Small Business

Question 1

Prospective entrepreneurs can access _____ data for information on subjects such as population, business, and housing.

A) MIT Enterprise Forum
B) International Franchise Association
C) Census Bureau
D) Federal Trade Commission

Answer 1

C

Question 2

In a franchise, which of the following is an advantage for a franchiser?

A) Brand recognition
B) Lower operating costs
C) Financial assistance
D) Share in local or national promotion

Answer 2

B

Question 3

Jane, who wants to start her own business, considers buying an Internet café which is up for sale in her neighborhood. However, Jane discovers that Internet connectivity tends to be erratic in the store since she lives in a remote town, and decides to not buy this business. Which of the following is most likely the reason for Jane's refusal to buy the business?

A) Lack of an established product line
B) Lack of an established channel of distribution
C) Problems due to old and obsolete facilities
D) Problems associated with workforce availability

Answer 3

C

Question 4

In franchising, which of the following is a benefit to the franchisee?

A) Share in local or national promotion
B) Lower operating costs
C) Faster expansion
D) Increase in royalty fees

Question 5

Which of the following is a reason for starting a new business?

A) The owner has freedom to select his/her own competitive environment.
B) It is easy to find the right business.
C) The chances of succeeding are higher in small business start-ups than in acquiring a franchise.
D) The owner does not have to experience problems in establishing basic management systems and controls when starting his/her own business.

Question 6

While working in a fast food outlet, Harold observed that most of the customers were working in offices in the neighborhood. Sensing a profitable opportunity, he decided to open a lunch catering business. He offered to deliver lunch directly to the offices so that the businessmen would not have to interrupt their meetings to go somewhere for lunch. In the context of the above scenario, which of the following was the reason for Harold to start his own business?

A) To obtain fresh inventory
B) To take advantage of the latest technology to fill a void
C) To select a competitive environment
D) To have a free hand in selecting personnel

Question 7

Which of the following refers to a group of retired managers from all walks of life who help people develop their business ideas?

A) Service Corps of Retired Executives
B) Federal Small Business Administration
C) State Economic Development Agency
D) Small Business Development Center

Question 8

Which of the following is true of market research in the context of small businesses?

A) Formal research programs are a cost-effective way to obtain guidance.
B) The district offices of the U.S. Department of Commerce have good libraries.
C) The Business Committee for the Arts has publications on organizing small businesses.
D) Market research consists of granting a franchisee the right to sell a product.

Question 9

The website of the Federal SBA has a self-help program called the _____ to help prospective entrepreneurs focus on some of the factors they need to consider.

A) Market Research Questionnaire
B) Directory of Entrepreneurship
C) Small Business Startup Kit
D) Test Marketing Tool

Question 10

The process of finding a small-but profitable-demand for something and producing a custom-made product for that market is known as:

A) lead marketing.
B) challenge marketing.
C) follower marketing.
D) niche marketing.

Question 11

John wants to start his own business. After doing some research, he has decided to specialize in cleaning kitchens since most homemakers are not satisfied with the quality of the service offered by the residential cleaning companies. What is this process of finding a small-but profitable-demand for something and producing a custom-made product or service known as?

A) Out-of-home advertising
B) Niche marketing
C) Sales promotion
D) Visual merchandising

Question 12

Catherine, who loves dogs, wants to offer dog walking services to her neighbors, many of whom have dogs. Her research leads her to a small professional pet care store operating in the area, and she decides to buy it. Which of the following is a good reason for Catherine to buy the pet care store?

A) The latest technology can be used to fill a service gap
B) A fresh inventory can be obtained
C) A competitive environment may be selected
D) The facilities are already available

Question 13

Which of the following is true about franchising?

A) The parties in a franchising arrangement usually compete with each other for success.
B) The franchisee is the company that owns the franchise's name and distinctive elements and grants others the right to sell its product.
C) A franchise is an agreement whereby an independent businessperson is given exclusive rights to sell a specified good or service.
D) The franchiser is usually an independent local businessperson who agrees with the franchise owner to operate the business on a local or regional basis.

Question 14

Which of the following is a good source of information to prospective business owners?

A) Business Committee for the Arts
B) State Economic Development Agencies
C) Federal Trade Commission
D) Business Council for International Understanding

Question 15

What does a franchiser do?

A) Owns the company's name and licenses others to sell its products
B) Provides a licensing fee to the owner of the business
C) Runs the day-to-day operations of the local business
D) Agrees to sell the product according to the franchisee's requirements

Question 16

Which of the following is a benefit of buying a franchise?

A) The franchisee can identify his or her market niche.
B) The franchisee can select his or her own sales activities.
C) The franchiser brings proven methods of operation to aid the franchisee.
D) The franchiser gives complete independence to run the franchise.

Question 17

_____ is a marketing system based on a legal arrangement that permits one party to conduct business as an individual owner while abiding by the terms and conditions set by the second party.

A) Joint venture
B) Turnkey projects
C) Wholly owned subsidiary
D) Franchising

Question 18

The system of gathering, recording, classifying, analyzing, and interpreting data related to merchandising of goods and services is known as:

A) market research.
B) operational research.
C) drip marketing.
D) loyalty marketing.

Question 19

Which of the following is a drawback of buying a franchise?

A) The franchiser does not provide any guidance to the franchisee.
B) Franchises are available in a very limited range of endeavors.
C) Franchisers have to identify their market niche and conduct their own sales activities.
D) The initial investment is quite high for the franchisee.

Question 20

Which of the following sources of information can help small business entrepreneurs better understand an area's needs?

A) The Office of International Trade
B) Chambers of commerce
C) The Directory of Trade Associations in the U.S.
D) The Small Business Administration

Question 21

Which document provides information to possible new franchisees on twenty items required by the Federal Trade Commission?

A) Business plan agreement
B) Disclosure statement
C) Marketing statement
D) Accounting statement

Question 22

Planning to start one's own business begins with searching for a good or service to sell.

Question 23

The continuous fee paid by the franchisee to the franchiser based on a percentage of the franchisee's gross revenue is known as:

A) royalty fee.
B) start-up fee.
C) license fee.
D) franchise fee.

Question 24

The Small Business Administration in the United States is a particularly effective source of local information for prospective business owners because it is familiar with an area's needs.

Question 25

Reintroducing an old product is a good business idea since customer tastes run in cycles.

Question 26

Which type of franchising system grants the franchisee the right to market the product and trademark and use a complete operating system?

A) Product format franchising
B) Business format franchising
C) Trademark franchising
D) International franchising

Question 27

Which of the following is true of business format franchising?

A) The franchiser exercises very little control over the franchisee's business operations.
B) Gasoline service stations and truck dealerships use this form of franchising.
C) The franchiser provides assistance to the franchisee to train franchise personnel.
D) Franchisees concentrate on handling the franchiser's product line and identify their business with that firm.

Question 28

Burger's Inc. owns a number of fast food stores across the country. Ryan, who wants to start his own business, decides to open a store under the Burger's Inc. trademark. He will have to sell and market the fast food products according to the terms of the licensing agreement. In this scenario, Ryan is a:

A) venture capitalist.
B) franchiser.
C) franchisee.
D) manufacturing agent.

Question 29

The Service Corps of Retired Executives publishes many useful books on planning and organizing small businesses.

Question 30

Small businesses must strive for low overhead, use no-frills assets, and look for better real estate deals.

Question 31

What is due diligence?

A) The research and analysis of the company that is done before a business transaction
B) The efforts of managers from all walks of life to help people develop their business ideas
C) The process of producing a custom-made product for that market
D) The agreement whereby a businessperson is given exclusive rights to sell a product

Question 32

Small businesses usually select one product niche because they do not have sufficient resources to cover the whole market.

Question 33

In a given market area, the fact that a high number of similar firms have gone out of business usually signals market weakness.

Question 34

When one wants to start a new business, the first step should be to decide whether to start a new business, buy an existing one, or buy a franchise.

Question 35

Which of the following is true about a franchise fee?

A) It is a fee paid to the franchiser at regular intervals of time.
B) It is based on a percentage of the franchisee's gross revenue.
C) It is a one-time fee paid to the franchiser.
D) It is a continuous fees paid by the franchiser to the franchisee.

Question 36

_____ is the concept that two or more people, working together in a coordinated way, can accomplish more than the sum of their independent efforts.

A) Duality
B) Due diligence
C) Niche marketing
D) Synergy

Question 37

Niche marketing is the systematic gathering, recording, and analyzing of data related to the marketing of goods and services.

Question 38

Which of the following is true of combination franchising?

A) It is opposed to the concept of synergy.
B) Cultural clashes can lead to the breakup of this arrangement.
C) The firms in this arrangement should be competing against each other.
D) This type of merger weakens the participating firms.

Question 39

The Small Business Administration is a group of retired managers who help people develop their business ideas.

Question 40

Product and trademark franchising:

A) grants the franchisee the right to sell a widely recognized brand.
B) is the systematic gathering, recording, and analyzing of data related to the marketing of goods and services.
C) is the concept that two or more people, working together in a coordinated way, can accomplish more than the sum of their independent efforts.
D) grants a franchisee the right to market the brand and trademark and to use a complete operating system.

Question 41

In the context of franchising, the success of fast food restaurants is related to the increasing number of women working outside the home.

Question 42

The disclosure agreement is a document that provides information on twenty items required by the Federal Trade Commission.

Question 43

Small businesses in the U.S. are moving away from synergy as they are trying to reengineer themselves.

Question 44

The franchiser exercises complete control over the franchisee's business operations.

Question 45

Due diligence is the concept that two or more people, working together in a coordinated way, can accomplish more than the sum of their independent efforts.

Question 46

A way to help avoid franchise scams is to carefully review the franchiser's disclosure document.

Question 47

Some franchisers prefer franchisees who own a large number of franchise outlets because it speeds their growth.

Question 48

In the context of small businesses, franchises tend to fail because of unsuccessful marketing.

Question 49

An advantage of buying a franchise is that it already has many of the requirements for success.

Question 50

Lack of an established product line does not typically stop a person from starting a new business.

Question 51

The industry group with the largest volume of sales in a business format franchising is automobile and truck dealerships.

Question 52

One should buy an existing business even if the financial condition of the firm is poor.

Question 53

A franchisee owns the franchise's name and distinctive elements and licenses others to sell its products.

Question 54

If an established business is in a desirable location, it is a good idea to buy it.

Question 55

Product and trademark franchising can be observed in the restaurant industry.

Question 56

A problem for franchisees is the high price of supplies that must be bought from the franchiser.

Question 57

In the context of franchising, a disclosure statement provides demographic information.

Question 58

Combination franchising is the ideal arrangement for big-name franchise operations to avoid cultural clashes.

Question 59

A disadvantage of franchising is the voluminous paperwork needed to provide disclosure documents to potential franchisees.

Question 60

In the context of small businesses, franchises tend to fail because of not having enough money to cover all needs.

Question 61

Describe some industries in the U.S. where franchising is expected to grow.

Question 62

What are the reasons for starting a new business and for not starting a new business?

Question 63

What is franchising?

Question 64

What are franchisee fees and royalty fees?

Question 65

Describe the two types of franchising systems.

Question 66

What could be the advantages and disadvantages of purchasing an existing small business?

Question 67

How would a potential entrepreneur use market research in order to obtain information about the market?

Question 68

What are the methods that a potential entrepreneur should follow to study the market?

Question 69

What are the benefits and drawbacks of buying a franchise?

Question 70

What is a disclosure statement?