Question

1.When does a contract have to be in writing in order to be enforceable? How would a party prove that an oral contract had been entered into by the parties without the presence of a written document proving the agreement?

2.Identify five questions that influence the negotiation process between a business buyer and a seller?

3.What is a franchise and how does it work?

4.What is the difference between a product and trademark franchise vs. a business format franchise? Which type of franchise is most common for entrepreneurial firms?

5.Kimberly Jones is the founder of a company in the medical equipment industry. Kimberly's firm is still in the feasibility analysis stage and doesn't have a product that is ready to sell. The company is spending about $25,000 per month and expects to maintain that level of spending until it reaches profitability. The $25,000 a month is Kimberly's:

a. consumption rate

b. utilization rate

c. burn rate

d. usage rate

e. liquidity rate

6.What is a saving clause? Why would an entrepreneur want to include a saving clause in a contract?

7.What is assent in a contract and what invalidates it?

Answer 1

1. Contracts are put in writing in order to be enforceable. If a contract falls into one of these six categories, the contract is “within the statute” and must be in writing. If the contract does not fall into one of these six categories, the contract is “outside the statute” and does not need to be in writing.

          The six categories of contracts that must be written down in order to satisfy the Statute of Frauds are:

• Contracts for the sale of an interest in land,
• Contracts for the sale of goods for $500 or more (under the U.C.C.),
• Contracts in consideration of marriage,
• Contracts that cannot be performed within one year of the contract being made,
• Contracts of suretyship,
• Contracts where an estate executor agrees to pay estate debts from his personal funds.

Oral contracts can be hard to prove because usually there is lack of hard evidence to the existence of the oral contract. To overcome this burden, a party can prove the existence of an oral contract by commencing performance, taking possession of the goods, or producing a purchase order or cheque to show payment for the goods or services. However proving an oral contract without sufficient evidence will be very difficult to prove.

3) A franchise is a way of structuring a business. Generally, it involves the owner of a business (known as the franchisor) licensing to a third party (known as the franchisee) the right to operate a business or distribute goods and/or services using the franchisor’s business name and systems (which varies depending on the franchisor) for an agreed period of time, in return for a fee. The franchise fee may be an upfront payment by the franchisee to the franchisor, an ongoing fee (e.g. an agreed on the percentage of revenue or profit) or a combination of the two).

4) In a product and trademark franchise, the franchisee will be a distributor of the product. In a traditional distribution agreement, the distributor’s business is just that. He may sell either competing or complementary products. It is unlikely that he will sell only one supplier’s products. He will sell whatever he distributes under his own name, although he may have signed on display bearing products ‘trademarks representing the products in his range. He will sell his products in his own way using his own business systems and methods. He will need no special training beyond becoming familiar with the product range, its capabilities and any follow-up services that may be appropriate. He will not pay fees. The business format franchisee’s position is in complete contrast. He will sell only the range of products associated with the franchisor’s business, using the franchisor’s name, business systems, and methods. The business format franchisee will pay fees and will obtain ongoing support from the franchisor.

Business format franchises are by far the most popular form of franchise, particularly for entrepreneurial firms.

E.g. Fast-food restaurants, convenience stores, and motels are well-known examples of business format franchises.

2) Five questions that influence the negotiation process between a business buyer and a seller are:

From a seller’s perspective:

a)Solution Question

This type of selling question influences the negotiation process between a business buyer and a seller and is asked late in the needs assessment after the seller has learned about the buyer’s needs (business needs, the ones that are bigger than a need for what you are selling).

b)Value Question

This question is extremely important and often left out in needs assessment and in preparing for negotiations. As a seller, it is imperative that you understand what matters most to the buyer. Responding to a need is only helpful if there is not a more urgent and pressing need that should be prioritized.

c) Example Question

This question is used to draw comparisons and paint contrasting pictures. No matter what the sellers are selling, an Example question can make the use of your product feel more concrete and relatable than imagination alone.

From a buyer’s perspective:

     d)   Can I afford it?

Good buyers ask if the product is good value for the money and according to the budget as planned and influence the negotiation process.

e) How much time will it take?

Good buyers ask this question to the sellers about the duration and completion of the deal and thus influence the negotiation process.