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CFC Franchise Financial Analysis & Investment Evaluation Flashcards

6 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 CFC Franchise Financial Analysis & Investment Evaluation flashcards as text

  1. Which funding source involves the franchise candidate using retirement account funds to invest in a franchise without incurring early withdrawal penalties?

    Answer: ROBS (Rollover for Business Startups)

    ROBS (Rollover for Business Startups) allows individuals to use qualifying retirement funds to invest in a franchise or business without triggering taxes or early withdrawal penalties.

  2. When a CFC reviews a franchise's royalty structure, what does a 'sliding scale royalty' mean?

    Answer: The royalty rate decreases as the franchisee's gross sales increase

    A sliding scale royalty structure reduces the royalty percentage as gross sales exceed certain thresholds, rewarding higher-performing franchisees.

  3. What is the SBA 7(a) loan program most commonly used for in franchise financing?

    Answer: Funding working capital, equipment, and real estate for eligible franchise openings

    SBA 7(a) loans are the most popular government-backed small business loans used by franchisees to fund working capital, equipment purchases, and real estate.

  4. What does EBITDA stand for, and why is it relevant when evaluating a franchise resale?

    Answer: Earnings Before Interest, Taxes, Depreciation, and Amortization — it reflects operational cash flow

    EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a proxy for operating cash flow and is commonly used as a valuation multiple when pricing franchise resales.

  5. A franchise candidate wants to compare two concepts with different royalty structures. One charges 6% of gross sales; the other charges a flat $2,000/month. At what monthly gross sales level would the flat fee be more economical?

    Answer: Above $33,333/month

    At $33,333/month in gross sales, 6% equals $2,000; above that threshold the flat fee becomes less expensive than the percentage-based royalty.

  6. Which financial metric indicates how efficiently a franchise uses its assets to generate profit?

    Answer: Return on assets (ROA)

    Return on assets (ROA) measures net income relative to total assets, showing how efficiently the business generates profit from its asset base.