Entrepreneurship and Small Business (ESB) Certification Practice Exam

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Which of the following is a benefit of a franchise?

  1. Unlimited liability

  2. High initial investment

  3. Less risk involved

  4. Complete operational control

The correct answer is: Less risk involved

A franchise offers several advantages, and one significant benefit is that it typically involves less risk compared to starting an independent business. When investing in a franchise, entrepreneurs benefit from a brand that is already established and recognized, along with proven operational systems and processes. This means that franchisees are often able to capitalize on the franchisor's experience, marketing strategies, and customer base, significantly reducing the uncertainties that come with launching a new business from scratch. In contrast, other options highlight concepts that are generally viewed as drawbacks rather than benefits. Unlimited liability indicates a higher level of personal financial risk, which is generally avoided by those interested in franchises. A high initial investment is often a barrier that prevents many from pursuing franchise opportunities, as it requires substantial capital commitments. Complete operational control is typically not a feature of franchises, as franchisees must adhere to the franchisor's established protocols and guidelines, limiting their ability to operate independently. This structure emphasizes the franchise system's collaborative approach rather than individual ownership. Thus, the reduced risk presented in franchising is a key incentive for many entrepreneurs.