franchise m 001
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FRANCHISE MANAGEMENTSMALL BUSINESSES
Small Businesses- Companies that are independently owned and
operated and are not dominant in their field- Concentrated in the service sector
Types:1.Lifestyle businesses - intended to provide
the owners with a comfortable life2.High-growth ventures - intended to
achieve rapid growth and high profits on investments
Economic Role of Small Businesses1.Providing jobs2.Bringing out new products and services3.Supplying the needs of big firms4.Providing specialized goods and services
Building a Business1.Finding an opportunitya.Establish your ownb.Buy an existing operationc. Obtain a franchise
2. Deciding on a Form of Ownershipa.Sole proprietorshipb.Partnership: partnership agreement – spells out the basic
outlines of your arrangement Buy/sell agreement - defines what will happen
in case of the demise of one partnerc. corporation:Stock redemption planCorporate by-lawsDeterminants: circumstances, financial
situation, type of business, number of employees, risks involved, tax position
3. Developing a Business Plan- A comprehensive written statement about
what you are going to do: basic idea, specific goals & objectives, personnel, marketing, facilities, suppliers, distribution, financial [ budget, projections, cash flow for the first two years]
4. Obtaining FinancingSources of funds:a.Debt - to be repaid with interest out of earningsb.Equity - not to be repaid but entitles the
investor to a piece of the company and a share of the profit
Funding the lifestyle business:a.Own savings or loans from relatives/friendsb.Bank loansc.Credit from suppliers [ Funding the high-growth venturea.Private investors – wealthy individuals
interested in an ownership positionb.Venture capitalists – firms that operate
investment pools of capital to finance new businesses; specialize in certain types of business; prefer companies that has the potential for going public, plays an active role in managing the business
c. Corporate sources – venture capital pools funded by large corporations that take minority positions: acquire new technology, financing & other types of assistance
d. Public stock offerings - selling shares in a company
5. Managing the Businessa. Planning the activities of the business- Ensure that a market exists- Plans to cope with problems
b. Marketing for the new business- Price- Advertising- Become innovative & responsive to the
marketc. Monitoring and controlling operations- Effective record-keeping system: customer
files, billing, production, inventory data, employee information, accounting function
d. Coping with red tape- Businesses are subject to the pressures and
requirements of our society’s legal system
e. Adjusting to growth – the idea person assumes the role of a manager
FACTORS that Breed Success1.Finding a solid business opportunity based on
a product that meets a clear need2.Building effective management skills3.Having adequate capital and credit to finance
the business4.Employing modern business methods for
planning & controlling operations
FACTORS that Lead to Failure1.Borrowing money without planning how and
when to pay it back2.Attempting to do too much business with too
little capital3.Not allowing for setbacks and unexpected
expenses4.Buying too much on credit5.Extending credit too freely6.Expanding credit too rapidly7.Failing to keep complete, accurate records8.Carrying habits of extravagance into the
business9.Mistaking the freedom of being independent
for liberty to work
Common MISTAKES Small Businesses Make1.Mistaking a hobby for a business- Lacks the critical business experiencea.Go to work for someone in the same
ventureb.Go directly into business with a partner
strong in management experience2. Trying to make the business appeal to
everyonea. Creates a company that is weak in several
areasb. Identify a specific market segment
3. Starting out with too little cash- Must sustain losses - Create a worst-case scenario projecting
the minimum revenue and maximum expenses
a. Arrange a line of credit at a bank4. Failing to detect bad credit risks earlya. Implement early-warning detection plan5. Setting the wrong price- There should be a balance between the
company’s need to make a profit and the cons
- umer’s search for value
6. Bleeding the business- Generous remunerationsa. Establish a percentage of total earnings
7. The fortress complex- Making all key decisions without going an
elaborate approval processa. Bring in outside opinions
Business Plans: What Turns Investors On
1. Evidence of customer acceptance- The company’s new product is already
being used2. Appreciation of Investor needs- Recouping of investments within 3 to 7
years- Proceeds of investment is commensurate
with the investment risk3. Evidence of Focus- Knowing which one or two things the firm
does best & concentrate on it4. A propriety position- Exclusive rights to a product or service
[patents, copyright, trademark] has an advantage over its competitors
What Turns Investors Off1.A Product Orientation- More details on the product rather than
the market and how it will be sold2. Projections that deviate excessively from
industry norms- Unduly optimistic about company growth
against industry accepted financial results3. Unrealistic growth projections- Exaggerated long-term growth4. Reliance on custom or application work- Basic product needs to be altered or
designed for each customer because of high costs
TYPES of a Small Business1. Small manufacturing businessEx. Printing press, furniture shops, garments
manufacturing2. Small service businessa. Business services – provide service to other
businessesEx. Accounting firm, janitorial services, security
servicesb. Personal services – provide service to the personEx. Tutorial services, voice lessons, massage
parlorsc. Repair services – provide repair services Ex. Auto repair, plumbing, watch repaird. Entertainment & recreation Ex. Movie houses, resorts
e. hotels/ motelsf. Education services – correspondence
schools, nursery school3. Wholesaling - activities of persons or
establishments which sell to retailers, industrial, institutional and commercial users in big volumes
4. Retailing - activities involved in the sale of goods and services to the final consumers
5. General construction firms - performs subcontracting jobs for the bigger contractors
Ex. Installation of electrical facilities, sewerage
CHARACTERISTICS of Small Business1.Independent management- owner/ manager2. Small capital requirements3. Mostly local operations
BENEFITS of Small Business Owners1.Control over own destiny2.Reach full potential3.Reap unlimited profits4.Make contribution to society & receive
recognition for the effort
DISADVANTAGES of Operating a Small Business
1.Uncertainty of income2.Risk of losing the entire invested capital3.Lower quality of life until the business
gets established4.Complete responsibility5.Service to undesirable customers6.Paper work & other chores7.Long hours & demanding work
conditions
The ENTREPRENEURIAL PersonalityCharacteristics:1. Drive - willing to accept responsibility, with vigor,
initiative, persistence & health2. Thinking ability - skills in abstract thinking and
the use of creative means to handle difficulties3. Human relations ability - ability to deal with
employees and customers effectively4. Communications ability - 5. Technical knowledge - knowledge of processes,
methods, procedures