Business Expansion 2023

Vertical integration means buying out a competitor to gain market share.  True or false?

• True
• False

Vertical integration means a merger somewhere up or down in the marketing chain.  True or false?

• True
• False

Walmart eliminated which part of the chain?

• Grower
• Retailer
• Distributor

Which of these businesses are usually 100% integrated?

• Restaurants
• Wholesale department stores
• Oil companies

A home business making costume jewelry and selling on the internet is vertically integrated.  True or false?

• True
• False

In some businesses vertical integration is inherent.  True or false?

• True
• False

When your business builds up cash, is vertical integration the next step?

• Yes
• No
• Not always

Which part of the chain is the "supply side"?

• Producer and refiner
• Distributor and retailer

Competing with your established customers is a risk of vertical integration.  True or false?

• True
• False

There is usually less risk in vertical expansion than there is in expanding within your own business.  True or false?

• True
• False

The advantage of franchising is it will provide investors to accelerate your expansion.  True or false?

• True
• False

There are advantages and disadvantages in franchising. Which of the following are advantages for the franchisor?

• Franchisees provide expansion capital and more rapid expansion over a wider area
• Sharing profits with the franchisee
• Loss of absolute control
• Lawsuits and difficult franchisees
• Less rapid expansion over a wider area

How long should you run a profitable business before you franchise?

• One month
• One to five years
• Start with several stores

Federal laws have basic jurisdiction over franchisors.  True or false?

• True
• False

The best place for a franchisee to learn the business is from another franchisee.  True or false?

• True
• False

Franchisees should have the authority to select their own locations.  True or false?

• True
• False

As a franchisor you must provide:

• Design and working drawings of the stores
• Create a site evaluation model
• Negotiate and approve the suitable location
• Hire and train the franchisee's employees
• All of the above

What percentage of franchisees filing lawsuits indicates a faulty franchise concept?

• 2%
• 5%
• 10%

Why should the franchise fee be put into an escrow account and disbursed to franchisor upon opening of the store?

• To protect the franchisee against fraudulent franchisors
• To avoid any misappropriation of funds
• To protect the franchisee in event of bankruptcy of the franchisor
• All of the above

In a franchisee operated store the employees are on the franchisor's payroll.  True or false?

• True
• False

Which of the following statements is true:

• Expansion into international trade is relatively risk free
• Expansion into international trade requires a major commitment of resources

A hollow corporation is:

• A franchised business
• A profit center within a business
• A business without a factory and minimum employees

Modifications in packaging or products is not commonly required to expand into international trade.  True or false?

• True
• False

The U.S. government, and most other governments, is reluctant to provide resources to facilitate international trade.  True or false?

• True
• False

Expansion into international trade will usually require setting up an export department.  True or false?

• True
• False

A distributor can contractually bind the company producing the goods.  True or false?

• True
• False

International franchising is discouraged by most countries.  True or false?

• True
• False

Expanding globally will take a lot of research and expertise.  True or false?

• True
• False

International trade can be accomplished without significant international travel.  True or false?

• True
• False

International trade can:

• Help sell excess manufacturing capacity
• Reduce dependence on domestic markets
• Maintain competitiveness in domestic market
• All of the above

The biggest risk in acquiring a business is:

• Marketing products under the seller's label
• Integrating accounting and reporting controls
• Over leveraging: acquiring too high a debt load
• Retaining the existing management

Starting from scratch is inherently less risky than acquiring a business.  True or false?

• True
• False

It is a good idea to always change the name of a business as soon as you purchase it.  True or false?

• True
• False

One of the greatest risks is not being aware of all the seller's liabilities and problems.  True or false?

• True
• False

Who is your number one source of financing when buying a business is?

• Banker
• The seller
• Investors
• Retained earnings

One of the greatest advantages of purchasing a related business?

• You know the business
• Your controls are in place
• Your buying power will be stronger
• All of the above

The definition of Intrinsic Value is measuring value based on your industry's average price-earnings ratio.  True or false?

• True
• False

Which method should not be used to establish the value of a business?

• Intrinsic value
• Sales, earning, return on capital
• Growth potential
• Unaudited financial records of the seller

What are some of the risks in purchasing a business?

• The seller's suppliers may not want to sell to you
• The labor force may not be compatible with yours
• You may be buying problems you are unaware of
• All of the above

An acquired business should be provided with ongoing funding in order to keep it competitive.  True or false?

• True
• False

What does IPO stand for?

• Independent Procedure Offering
• Initial Public Offering
• Investor Private Offerings

What is the main reason a private company would go public?

• To raise capital
• To have greater control over operations
• To cut accounting cost

How is the value of a publicly owned company established?

• Sales
• Earnings
• Stock value

Which type of ownership can raise cash more readily?

• A privately owned company
• A publicly owned company

Sarbanes-Oxley Act mandates:

• All directors must be people outside the company
• Patents need to be disclosed and made public
• Strong internal control provisions

A disadvantage of public ownership is:

• Your books are open to the public and your competitors
• Intellectual property and patents become public property

Going public is realistic for most business.  True or false?

• True
• False

To go public you will need to:

• Do more research
• Hire a going-public team
• Successfully pass all IPO conditions
• All of the above

Going public will require that your financial statement has been reviewed by a C.P.A.  True or false?

• True
• False

It is possible for a business to be asset rich and cash poor.  True or false?

• True
• False

The percentage of businesses sold for all cash is:

• 60%
• 10%
• 40%

How many years of audited accounting should you have?

• 5 years
• 3 years
• 10 years

It is not a good idea to disclose what inventory is obsolete.  True or false?

• True
• False

Who is the best advisor to recommend whether to include the real estate?

• Your C.P.A.
• Your lawyer
• Your lawyer and your C.P.A.

Taxes owed by the seller will be the same regardless of the structuring of the sale.  True or false?

• True
• False

The C.P.A. is important because they:

• Furnish your audited financial statement
• Evaluate the financial records of the buyer
• Advise on tax matters
• All of the above

Your competitors are not good prospects for buying your business.  True or false?

• True
• False

Your business broker should be responsible for locating prospective buyers.  True or false?

• True
• False

Goodwill can be a factor in establishing the selling price.  True or false?

• True
• False

What is the most common mistake people make when selling their business?

• Setting the price too high
• A lack of audited financial statement
• Difficulty of verifying sales in a cash business
• All of the above