SELECTING A TYPE OF OWNERSHIP

CHAPTER 2

Why the business is for sale◦ Insufficient sales◦ Competition◦ Economy◦ Retirement◦ Dispute between partners

AN EXISTING BUSINESS

1. The existing business all ready has customers, suppliers, and procedures.

2. The seller of a business may train a new owner.

◦ Key employees to learn from

ADVANTAGES OF BUYING AN EXISTING BUSINESS

3. There are prior records of revenues, expenses, and profits.

◦ Finances are more reliable

4. Financial arrangements can be easier. ◦ Reduce/eliminate bank financing or easier to

get (less amount to borrow)

ADVANTAGES OF BUYING AN EXISTING BUSINESS

1. Many businesses are for sale because they are not making a profit.

2. Serious problems may be inherited.◦ Poor reputation◦ Suppliers and location

3. Capital is required. ◦ Entrepreneurs do not have or access to $$$

DISADVANTAGES OF BUYING AN EXISTING BUSINESS

1. Write specific objectives about the kind of business you want to buy, and identify businesses for sale that meet your objectives.

2. Meet with business sellers or brokers to investigate specific opportunities.

◦ History of business◦ Why its for sale

7 STEPS TO PURCHASING A BUSINESS

3. Visit during business hours to observe the company in action.

◦ Facility meets your needs4. Ask the owner to provide you with a

complete financial accounting of operations for at least the past three years.

◦ Profit and expenses

7 STEPS TO PURCHASING A BUSINESS

5. Ask for important information in written form.

◦ All assets to be transferred◦ Past/present legal action◦ Suppliers◦ Suspicious if owner refuses

6. Determine how you would finance the business.

7. Get expert help to determine a price to offer for the business.

7 STEPS TO PURCHASING A BUSINESS

Advantages:

Some enjoy working with their family

Benefiting those they care about

Stays in the family

Pride

ENTERING A FAMILY BUSINESS

Disadvantages: Management (regardless of ability) Retain good employees (not family)

Family politics Business vs. Private lives

ENTERING A FAMILY BUSINESS

A legal agreement that gives an individual the rights to market a company’s products

or services in a particular are.

FRANCHISE OWNERSHIP

Franchisee

Franchisor

Initial Franchise Fee

Royalty Fees

Advertising Fees

FRANCHISE OWNERSHIP

1. An entrepreneur is provided with an established product or service.

2. Franchisors offer management, technical, and other assistance

ADVANTAGES OF OWNING A FRANCHISE

3. Equipment and supplies can be less expensive.

4. A guarantee of consistency attracts customers.

ADVANTAGES OF OWNING A FRANCHISE

1. Franchises can cost a lot of money and cut down on profits.

2. Owners of franchisees have less freedom to make decisions than other entrepreneurs.

DISADVANTAGES OF OWNING A FRANCHISE

3. Franchisees are dependant on the performance of other franchises in the chain.

4. The franchisor can terminate the franchise agreement.

DISADVANTAGES OF OWNING A FRANCHISE

1. What is the demand for this product or service in my area?

◦ Other’s in the area now?

◦ In the future?

EVALUATE A FRANCHISE

2. What are the costs and royalty fees associated with the franchise?

EVALUATE A FRANCHISE

3. How profitable have other franchises been in this area? What do they think of it?

EVALUATE A FRANCHISE

4. How long has the franchise been in business? How profitable is the franchisor?

EVALUATE A FRANCHISE

5. What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection?

EVALUATE A FRANCHISE

6. Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise?

EVALUATE A FRANCHISE

7. What happens if I want to cancel the franchise agreement?

EVALUATE A FRANCHISE