Lesson 1.4.1c
1.4.1c Franchising: advantages and disadvantages Quiz: Pearson Edexcel Business, Unit 4
20 questions
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Lesson 1.4.1c, Franchising: advantages and disadvantages: 20 multiple choice questions for the Pearson Edexcel GCSE Business (1BS0), Unit 4: Making the business effective, written with Revision Ninja.
Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.
The 20 questions
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What is franchising?
- Setting up a business that sells only to other businesses on a wholesale basis with no branded outlets
- A type of public limited company that sells franchise shares on a stock exchange to the general public
- An arrangement where a franchisee pays a franchisor for the right to trade under its brand and system
- A form of partnership in which the partners share all profits equally and make joint decisions together
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Which of these is an advantage of franchising for the franchisee?
- It is free to start because the franchisor provides all the finance needed
- It removes any need for the franchisee to pay fees or royalties to anyone
- It gives an established brand name and a proven business model with support
- It means the franchisee keeps no obligations to follow the franchisor's rules
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Which of these is a disadvantage of franchising for the franchisee?
- The franchisee must pay an initial fee and ongoing royalties to the franchisor
- The franchisee has complete freedom to change the product range at any time
- The franchisee receives no training or help from the franchisor at all
- The franchisee can sell the brand to any other business without permission
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A franchisee pays a £20,000 franchise fee and 6% of sales as royalties. Sales are £150,000 in a year. What are the royalties?
- £20,000
- £12,000
- £6,000
- £9,000
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Which of these is a benefit of franchising for the franchisor?
- It loses control over its brand as soon as the first franchise opens to the public
- It must share all of its profits equally with every franchisee in the network
- It has to pay for all shop fittings and staff in every franchise location, including rent
- It can expand quickly with less of its own capital because franchisees invest money
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Which of these is a disadvantage of franchising for the franchisor?
- It has to find all the capital needed for each new outlet alone, without any outside help
- It may find that poor service by one franchisee damages the brand's reputation
- It must run every franchise outlet itself, so it cannot expand beyond its own premises
- It cannot receive any income from fees and royalties paid by its franchisees at all
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A franchisee is running a fast-food outlet under a well-known brand. Which advantage does the brand name most directly give?
- Customers already recognise the brand, which can attract sales from the start
- The franchisee avoids paying any tax on its profits from the outlet
- The franchisor agrees to pay the franchisee's wages during the first year
- The franchisee can ignore quality standards because the brand guarantees success
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Why might a franchisee find it hard to change how a franchise operates?
- Franchise agreements usually require the franchisee to follow the franchisor's systems and standards
- Franchisees are forbidden from speaking to customers about the business or answering their questions
- Franchisees are not allowed to employ any staff of their own, so all of the work is done by the franchisor
- Franchisees can only sell products that they have invented themselves without any input from the brand
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What does a franchisor provide to a franchisee in exchange for fees?
- Ownership of the franchisor's company and a share of its profits
- A guarantee that the franchise will always make a profit each year
- A brand, a tested business model, training and ongoing support
- Unlimited borrowing from the franchisor's bank at a low interest rate
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Which of these is a key difference between a franchise and a sole trader business?
- A franchisee is always a public limited company, while a sole trader is never a company
- A franchisee must share profits with the government, while a sole trader does not
- A franchisee runs a brand owned by someone else, while a sole trader owns and runs their own brand
- A franchisee has no owner at all, while a sole trader is owned by a registered company
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A franchisor earns a royalty of 5% on sales. Sales in one outlet are £240,000. What royalty does the franchisor receive?
- £48,000
- £12,000
- £1,200
- £24,000
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Which of these would be a reason for a franchisee to prefer franchising over starting an independent business?
- They want the franchisor to take all the legal responsibility for the staff they employ
- They want to avoid all risk and be guaranteed high profits from the first day of trading
- They want a tested model and brand support, and accept less freedom to make changes
- They want to control the brand and sell it on to other businesses at a later date
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Why might a franchisor insist on strict quality standards across all outlets?
- To make sure that franchisees are free to sell the brand to competitors in the same area
- To allow the franchisor to avoid paying any royalties from the outlets it has licensed
- To ensure the brand has the same reputation wherever a customer buys from it
- To prevent franchisees from ever making a profit from their own sales in their area
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A franchisee has to spend £60,000 setting up an outlet and receives an £8,000 annual royalty bill. Which is the strongest risk to them?
- The franchisor can take the outlet back without paying anything in return ever
- The franchisee must pay tax to the franchisor on every single item sold
- Poor sales may not cover the set-up costs and fees, leaving them with a loss
- The royalty bill is paid to the franchisee rather than from it
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Which of these is a benefit of franchising for customers?
- They are guaranteed a free product every time they visit an outlet of the brand
- They can expect a consistent product and service at any outlet of the brand
- They always receive lower prices than at any independent business in the same high street
- They can return goods to any shop in the world without a receipt, at any time
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Which of these best explains a 'royalty' in franchising?
- A one-off payment made by the franchisee to buy the franchise premises from the franchisor directly
- A payment the franchisor makes to the franchisee each year as a bonus for good performance in sales
- An ongoing payment, often a percentage of sales, made by the franchisee to the franchisor
- A tax paid by the franchisee to the government on every franchise outlet's profit each financial year
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What is the main reason a franchisor might choose franchising to grow the business?
- It allows the franchisor to sell its business without any legal process or paperwork at all
- It allows the franchisor to grow using franchisees' capital and effort in new locations
- It means the franchisor no longer needs to maintain its brand or the quality of its products
- It guarantees the franchisor will never have to deal with any customer complaints again
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Which statement is true of a franchisee's contract?
- It gives the franchisee the right to change the brand name at their own discretion
- It is never legally binding on either the franchisee or the franchisor
- It usually sets out the fees, the operating rules and how the franchise may be run
- It means the franchisor is not allowed to inspect the outlet at any point
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A franchisee's profit is lower than expected because the franchisor's national advertising costs are high. What type of risk is this?
- A risk of losing ownership of the franchise premises to the government under a compulsory purchase
- A risk of being unable to sell any goods because the brand is not recognised by customers at all
- A risk of depending on the franchisor's decisions and costs, which the franchisee cannot control
- A risk of breaking the law because the franchisor is a public limited company listed abroad
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Which two parties are involved in a franchise?
- A supplier and a customer
- A shareholder and a company director
- A franchisor and a franchisee
- A partner and a sole trader
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