Lesson 1.4.1c

1.4.1c Franchising: advantages and disadvantages Quiz: Pearson Edexcel Business, Unit 4

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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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.

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The 20 questions

  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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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