Presentation on theme: "1 Academic PowerPoint Purchase of an Established Business."— Presentation transcript:
1 Academic PowerPoint Purchase of an Established Business
2 Definition of a Franchise A franchise is a right, for a fixed number of years, to operate a business under an established brand name.
3 Nature of a Franchise In a typical franchise operation, a person buys the right to carry on a business selling products for a fixed number of years, under an established brand name.
4 Nature of a Franchise The person buying the franchise business outlet, known as the franchisee, will usually pay a large, once only fee to the owner of the franchise system and an ongoing royalty that may be, for example, 6% to 10% of the value of the sales.
5 Nature of a Franchise The franchise is purchased by signing a business agreement known as a contract. The prospective franchisee should have the agreement reviewed by a: –Solicitor –Accountant –Business Advisor
6 Advantages to the Franchisee The advantages of buying a franchise business will depend, to a large extent, on the quality of the franchise system that is purchased. A good quality franchise will offer many benefits.
7 Advantages of the Franchise The benefits include: –Established reputation –Training system developed –On-going advertising support –Receive advise on shop location and shop layout –Franchisee can advice other operators –Discount for buying large quantities of stock –Risk of franchise business failure is lower than other operations
8 Disadvantages of the Franchise Possible disadvantages of a franchise: –Location of operation may be limited –Payment of on-going royalty –May be limited on-going or inappropriate advertising –Asking price may be too high - limited value for money –If could be cheaper to establish your own business rather than commit to a franchise contract
9 Purchase of an Established Business A person who wants to go into business can start a business, buy a franchise or purchase an existing business. The purchase of an existing business has a number of advantages over starting a new business.
10 Purchase of an Established Business The advantage for a new owner is that they can buy a business that has already been taken through the difficult set-up stage, already has the plant and equipment needed to operate the business and has an existing customer base.
11 Purchase of an Established Business The disadvantages of buying an existing business include the possibility that the new owner may inherit a business that has a poor public image or may face a loss of sales as some of the existing customers may not return to buy from the new owner. The new owner may also pay too much to purchase the business.
12 Reference Material used in the PowerPoint slides and worksheets have been reproduced from the following reference with full permission: Business Management in Australia -Ashley Doyle