Deck 16: Financing Your Franchised Business

Question 1

Preparing a financial package by a franchisee is meant to assist in the generation of equity investment or debt backing for the startup and operation of the business venture.When preparing the financial package for presentation,the first parties to consider when writing the financial package should be:

A)the franchisor
B)other franchisees of the same franchise system
C)the area developer or Director of Franchising for the franchise system
D)the local bank,loan office or investor to understand the operations,functions and potential profitability of the franchise.

Answer 1

D
The financial package is written to the primary reader---the bank,loan office or potential investors

Question 2

The executive summary part of the financial package

A)details how the business intends to generate its profit through the descriptions of products or services offered by the franchisee
B)explains the business,and sparks the interest of the reader in how the funds will be used
C)enumerates all expenses necessary before the first customer enters the door
D)focuses on the franchising agreement between franchisor and franchisee so the reader understands all contracts,licenses and other legal requirements of the business.

Answer 2

B
The executive summary may be seen as an advertising document,a sales pitch for the franchisee and the franchise while stating clearly and precisely what is going to be done and how it is going to be done

Question 3

Debt financing by a franchisee is typically found in two forms

A)selling part of the ownership to partners and funds granted from family and friends
B)selling part of the ownership to partners and bank financing for working capital
C)funds granted to franchisee from family and friends and bank financing for working capital
D)borrowing money for working capital and for financing capital expenditures.

Answer 3

D
Borrowed funds-short-term arrangements as bank loans or trade credits-and long-term loans for capital equipment,purchase of land or buildings are all considered as debt financing.Selling ownership into the business and gifts of money to the firm would be considered as equity investments into the business,not debt.

Question 4

The primary goal of any franchise company is to:

A)make a Profit
B)have ever-increasing sales
C)expand internationally
D)lobby Congress for exceptions to Rule 436.1.

Question 5

In 1953 Congress passed the Small Business Act to help small firms (including franchisees)obtain loans for startups and other business needs.The SBA helps franchisees obtain capital through several ways indicated below.Which one option below is not offered by the SBA to small businesses?

A)the SBA loan guarantee program
B)Small Business Investment companies (SBICs)
C)direct SBA (direct federal tax monies)provided to the business for startup funding
D)the Federal Registry,which has as a part called the Franchise Registry specific for assisting in creating loan possibilities into the franchise industry

Question 6

Typically,franchise fees

A)remain the same and do not vary,depending on the number of franchised units planned for in the initial agreement between franchisor and franchisee
B)may differ within the same franchise system,depending on the number of franchised units to be opened
C)are set very high to discourage most and only attract the most financially capable
D)most often the greatest financial commitment required of a potential franchisee

Question 7

The "initial franchise fee" is

A)a one-time cost or fee born by the new franchisee
B)a recurring cost or fee,every three or five years
C)a one-time fee that is most often waived by the franchisor
D)none of the above

Question 8

When its time to sell or retire,most franchisors will cooperate with the franchisee intent to exit

A)but are not usually interested in helping the franchisee find a buyer for the business
B)other franchisees are not likely to among those persons with intent or interest to purchase another franchise unit
C)and will stand aside to allow the franchisee to sell to whomever is found as a buyer of the business
D)none of the above is an accurate statement

Question 9

Most franchisors

A)provide up to 90 % in the financing of new franchisees
B)will not become involved with the financing of new franchisees,although a few may provide a limited amount of help
C)arrange for financing of franchisees through their own financial acceptance corporations
D)provide up to 25 %,but rarely any more,of the financing of new franchisees

Question 10

The franchisee's major financial obligation is to:

A)the Internal Revenue Service
B)one's State Department of Revenue
C)City or County health department
D)the franchisor