SELECTING A TYPE OF OWNERSHIP CHAPTER 2

AN EXISTING BUSINESS Why the business is for sale Insufficient sales Competition Economy Retirement Dispute between partners

ADVANTAGES OF BUYING AN EXISTING BUSINESS The existing business all ready has customers, suppliers, and procedures. The seller of a business may train a new owner. Key employees to learn from

ADVANTAGES OF BUYING AN EXISTING BUSINESS There are prior records of revenues, expenses, and profits. Finances are more reliable Financial arrangements can be easier. Reduce/eliminate bank financing or easier to get (less amount to borrow)

DISADVANTAGES OF BUYING AN EXISTING BUSINESS Many businesses are for sale because they are not making a profit. Serious problems may be inherited. Poor reputation Suppliers and location Capital is required. Entrepreneurs do not have or access to $$$

7 STEPS TO PURCHASING A BUSINESS Write specific objectives about the kind of business you want to buy, and identify businesses for sale that meet your objectives. Meet with business sellers or brokers to investigate specific opportunities. History of business Why its for sale

7 STEPS TO PURCHASING A BUSINESS Visit during business hours to observe the company in action. Facility meets your needs 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 Ask for important information in written form. All assets to be transferred Past/present legal action Suppliers Suspicious if owner refuses Determine how you would finance the business. Get expert help to determine a price to offer for the business.

ENTERING A FAMILY 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

FRANCHISE OWNERSHIP 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

ADVANTAGES OF OWNING A FRANCHISE An entrepreneur is provided with an established product or service. Franchisors offer management, technical, and other assistance

ADVANTAGES OF OWNING A FRANCHISE Equipment and supplies can be less expensive. A guarantee of consistency attracts customers.

DISADVANTAGES OF OWNING A FRANCHISE Franchises can cost a lot of money and cut down on profits. Owners of franchisees have less freedom to make decisions than other entrepreneurs.

DISADVANTAGES OF OWNING A FRANCHISE Franchisees are dependant on the performance of other franchises in the chain. The franchisor can terminate the franchise agreement.

EVALUATE A FRANCHISE What is the demand for this product or service in my area? Other’s in the area now? In the future?

EVALUATE A FRANCHISE What are the costs and royalty fees associated with the franchise?

EVALUATE A FRANCHISE How profitable have other franchises been in this area? What do they think of it?

EVALUATE A FRANCHISE How long has the franchise been in business? How profitable is the franchisor?

EVALUATE A FRANCHISE What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection?

EVALUATE A FRANCHISE Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise?

EVALUATE A FRANCHISE What happens if I want to cancel the franchise agreement?