Term 1 Topic 1.7 - Ways of acquiring a business

Question 1

Name the 3 ways you can acquire a business

Answer 1

1) Leasing
2) Franchising
3) Outsourcing

Question 2

Provide ONE word for:

When a specific job is given on contract to another business or person (For example: you outsource to another company to clean The Spur on a daily basis)

Answer 2

Outsourcing

Question 3

Provide ONE word for:

Authorisation given to a business or person to allow them to do business under a specific brand (For example: The Spur)

Answer 3

Franchise

Question 4

Provide ONE word for:

A contract in writing between 2 parties where one party gives another party the use of land or equipment in exchange for payment

Answer 4

Leasing

Question 5

Franchisor: ..(a).. the right to a business
Franchisee: .. (b).. the franchisor

Answer 5

a) owns
b) pays

Question 6

Lessor: ..(a).. out the property
Lessee: ..(b).. for the lease of the property

Answer 6

a) letting
b) paying attention to

Question 7

What are the ADVANTAGES to the FRANCHISEE? (person who pays the franchisor)

Answer 7

• lower START-UP costs
• rights to use a WELL-KNOWN BRAND
• franchise financing & TRAINING
• SHARED marketing & advertising
• bigger purchase power
• REDUCED business risk

Question 8

Name the DISADVANTAGES to the FRANCHISEE (person who pays the franchisor)

Answer 8

• Pays ROYALTIES as % of profits
• COSTLY
• Must follow PRICING of the franchisor
• Cannot EXPAND
• Limits to CREATIVITY
• Franchisor SUPPORT not always available

Question 9

What are the ADVANTAGES to the FRANCHISOR (business who owns the brand or business)

Answer 9

• Income received in ROYALTIES &
  Franchise fees
• Expand QUICKLY
• CONTROL your brand
• Not involved in DAY-TO-DAY business
  problems
• Good MARKETING
• Does not need START-UP capital

Question 10

What are the DISADVANTAGES to the FRANCHISOR (business who owns the brand or business)

Answer 10

• Constantly managing FRANCHISEES
• High OFFICE running costs
• MARKETING is expensive
• Income is fixed and no control of sales
• Must provide TRAINING
• High RISK of financing a franchise

Question 11

What are the PROS and CONS of LEASING

Answer 11

PRO’S:
+ Use an expensive asset, without paying
the full amount upfront
+ If it breaks, it will be replaced at no extra
cost
+ Deduct leasing cost as an expense
+ Easy to manage a lease
+ Can return it when not needed anymore

CONS:
- Never owns the asset

Question 12

What are the PROS and CONS of OUTSOURCING

Answer 12

PRO’S:
+Cost of salaries lower
+Budgeting of costs are easier
+Get specialised skills
+Easily change to another party if service is
not good

CONS:
-Less control over outsourced staff (security
risks)
- Have to depend on another party to
maintain high levels of service

Question 13

TRUE OR FALSE:

The FRANCHISOR is the individual owner of the supermarket who wants to start trading under the franchise brand

Answer 13

False - it is the francisee

Question 14

TRUE OR FALSE:

The LESSOR is usually the owner of the building

Answer 14

True

Question 15

TRUE OR FALSE:

OUTSOURCING is giving a specific job on contract to another business or person

Answer 15

TRUE

Question 16

TRUE OR FALSE:

An ADVANTAGE of a FRANCHISE is that the brand name is well known so it has high start-up costs.

Answer 16

False - it has low start-up costs

Question 17

TRUE OR FALSE:

A DISADVANTAGE of a franchise to a franchisee is that it has high national advertising and marketing costs

Answer 17

False - this is a disadvantage to a franchisor

Question 18

Give ONE reason why a lease is better than buying an item outright for cash

Answer 18

Don’t need to raise the full cash amount upfront

OR

If you don’t need the item, it can be returned

OR

If the item breaks, the lessor will replace or fix it (at no cost)