Understanding Business Opportunity
Investments
TRUE or FALSE QUIZ
Answer Key
Back to Understanding Business Opportunity Investments
| 1. |
New business opportunity and franchise ventures have a significantly lower failure rate than other start-up businesses.
Answer: False
Figures supporting this proposition have been inconclusive. Sales by franchisees may mask business failures which do not show up in the statistics. For example, a franchisee having financial difficulties may sell the franchise at a loss to someone else. Alternatively, the franchisee may abandon the franchise, with the franchisor having to reacquire and resell the franchise to recoup sums owed to it by the original franchisee. |
| 2. |
If the business is not a franchise, disclosures under state and federal business opportunity and franchise laws are not necessary or required.
Answer: False
At many business opportunity and franchise shows, leaflets are distributed at the door describing the Federal Trade Commission's rule on franchising and business opportunity ventures. When members of the public ask exhibitors if they are entitled to disclosure, they are occasionally stonewalled with this fallacy. |
| 3. |
Getting in early on a new product or service will ensure your success.
Answer: False
Too often, the product or service is not the "breakthrough" it was represented to be but only a knock-off of the latest fad. Businesses with innovative products or services tend not to launch a rapid business opportunity or franchise expansion campaign. Rather, they proceed slowly, cautious that the seller may not be able to support sudden widespread expansion. |
| 4. |
You can always recover your losses by yourself or with the state's help.
Answer: False
If the seller's assets have been dissipated or if the seller has skipped town for parts unknown, you will have trouble recouping your losses. The ability of regulators to get your money back for you is limited by statute and by the same collection problems you would experience. Perhaps most important, will you have the money to hire an attorney later if things don't pan out? |
