Entrepreneurship- Chapter 7 Exam Questions and Correct Answers Latest Update 2024
What are some advantages of buying an existing business? - Answers -already has the necessary
equipment, suppliers, and procedures in place
-may have built up goodwill (customer loyalty)
-the seller may train a new owner
-there are prior records of revenue, expenses, and profits
-financial arrangements can be easier
What are some disadvantages of buying an existing business? - Answers - many business for sale are
risky because they are not making a profit
-serious problems may be inherited (like a bad reputation with customers or poor location)
-capital is required
-there may be staff problems
What are the seven steps in buying a business? - Answers 1. Have specific objectives about the kind of
business you want to buy, and identify businesses for sale that meet your objectives
2. meet with business sellers or brokers to investigate specific opportunities
3. visit during business hours to observe the business in action
4. ask the owner to provide you with a complete financial accounting of operations for at least the past
three years
5. ask for important information in written form
6. determine how you would finance the business
7. get expert help to determine a price to offer for the business
Franchise - Answers a legal agreement that gives an individual the right to market a company's products
or services in a particular area
franchisee - Answers the person who purchases a franchise agreement
franchisor - Answers the person or company that offers a franchise for purchase
initial franchise fee - Answers the amount the local franchise owner pays in return for the right to run
the franchise
startup cost - Answers the costs associated with beginning a business
, royalty fees - Answers weekly or monthly payments made by the local owner to the franchise company
advertising fees - Answers paid to the franchise company to support television, magazine, or other
advertising for the franchise as a whole
franchise disclosure document (FDD) - Answers a regulatory document describing a franchise
opportunity that prospective franchisees must receive before they sign a contract
What are some of the things you should do when evaluating a franchise? - Answers 1. study the
disclosure document and proposed contract carefully
2. interview current owners
3. investigate the franchisor's history, profitability, and claims about potential earnings
4. listen carefully to sales presentations
5. shop around
6. determine what will happen if you cancel the franchise agreement
What are some advantages of owning a franchise? - Answers 1. provided with an established product or
service
2. franchisors offer management, technical, and other assistance
3. equipment and supplies can be less expensive to purchase
4. a guarantee of consistency attracts customers
What are some disadvantages of owning a franchise? - Answers 1. can be costly and cut down on profits
2. less freedom to make decisions
3. dependent on the performance of other franchisees in the chain
4. the franchisor can terminate the franchise agreement
What percent of businesses are owned by families? - Answers 90%
What are some advantages of a family business? - Answers 1. leadership is highly stable
2. there is a high level of commitment and loyalty from employees
3. may offer more flexibility
What are some disadvantages of a family business? - Answers 1. leaders and/or employees may be
inadequate
What are some advantages of buying an existing business? - Answers -already has the necessary
equipment, suppliers, and procedures in place
-may have built up goodwill (customer loyalty)
-the seller may train a new owner
-there are prior records of revenue, expenses, and profits
-financial arrangements can be easier
What are some disadvantages of buying an existing business? - Answers - many business for sale are
risky because they are not making a profit
-serious problems may be inherited (like a bad reputation with customers or poor location)
-capital is required
-there may be staff problems
What are the seven steps in buying a business? - Answers 1. Have specific objectives about the kind of
business you want to buy, and identify businesses for sale that meet your objectives
2. meet with business sellers or brokers to investigate specific opportunities
3. visit during business hours to observe the business in action
4. ask the owner to provide you with a complete financial accounting of operations for at least the past
three years
5. ask for important information in written form
6. determine how you would finance the business
7. get expert help to determine a price to offer for the business
Franchise - Answers a legal agreement that gives an individual the right to market a company's products
or services in a particular area
franchisee - Answers the person who purchases a franchise agreement
franchisor - Answers the person or company that offers a franchise for purchase
initial franchise fee - Answers the amount the local franchise owner pays in return for the right to run
the franchise
startup cost - Answers the costs associated with beginning a business
, royalty fees - Answers weekly or monthly payments made by the local owner to the franchise company
advertising fees - Answers paid to the franchise company to support television, magazine, or other
advertising for the franchise as a whole
franchise disclosure document (FDD) - Answers a regulatory document describing a franchise
opportunity that prospective franchisees must receive before they sign a contract
What are some of the things you should do when evaluating a franchise? - Answers 1. study the
disclosure document and proposed contract carefully
2. interview current owners
3. investigate the franchisor's history, profitability, and claims about potential earnings
4. listen carefully to sales presentations
5. shop around
6. determine what will happen if you cancel the franchise agreement
What are some advantages of owning a franchise? - Answers 1. provided with an established product or
service
2. franchisors offer management, technical, and other assistance
3. equipment and supplies can be less expensive to purchase
4. a guarantee of consistency attracts customers
What are some disadvantages of owning a franchise? - Answers 1. can be costly and cut down on profits
2. less freedom to make decisions
3. dependent on the performance of other franchisees in the chain
4. the franchisor can terminate the franchise agreement
What percent of businesses are owned by families? - Answers 90%
What are some advantages of a family business? - Answers 1. leadership is highly stable
2. there is a high level of commitment and loyalty from employees
3. may offer more flexibility
What are some disadvantages of a family business? - Answers 1. leaders and/or employees may be
inadequate
