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Presentation transcript:

© 2005 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Accessing Resources For Growth From External Sources 15 Chapter Accessing Resources For Growth From External Sources

External Parties For Business Growth Franchising Joint Ventures Acquisition Merger

Fastest Growing Franchises (2003) Company Since Type # Stores Curves 1995 Women’s Only Fitness 3,778 Subway 1974 Submarine Sandwich 14,800 7-Eleven 1964 24-Hr. Convenience 3,761 Taco Bell Mexican Fast Food 5,417 Jani-King Commercial Cleaning 7,843 Source: Entrepreneur, 2003

Franchise System Franchise Agreement Franchisor Franchisee

Franchising & Franchisee Advantages Reduced Risk Product Acceptance Mgmt. Expertise Buying Power Market Knowledge Financial Advice Controls Disadvantage High Start-up Costs Franchisor Unable To Perform Franchisor Failure Or Sale

Franchising & Franchisor Advantages Quick Expansion & Little Capital Large Operation Yet Few HQ Employees Economies Of Scale Large Advertising Budget Disadvantages Difficult To Find Quality Franchisees Single Franchisee Failure Reflects On Entire System Expansion Creates Loss Of Control

Franchise Capital Requirements Franchise/Royalty Fee Construction Costs Equipment Purchase

Franchisor Provides Facility Layout Control Stock & Inventory Buying Power Advertising/Sales Promotion- Local & National

Franchise Types Dealership Name & Image & Method Services

Franchising Opportunities Health Time Saving & Convenience Environmental Consciousness Second Baby Boom

Franchising Risks Unproven vs. Proven Franchise Financial Stability Of Franchise Potential Market Profit Potential

Branded Product/Service Franchise Contract Franchisor, Inc. Branded Product/Service Performance Monitoring $$$$$ Franchisee

Franchisor Assigns Territory Provides Training/Support Provides Financial Aid/Advice Offers Merchandise/ Supplies at Competitive Price Provides Training/Support Business Expansion Using O.P.M.

Franchisee Pays Up-Front Costs Makes Monthly Payment to Franchisor Runs Business by Franchisor’s Rules/Procedures Buys Materials from Franchisor/ Approved Supplier

Joint Ventures Types Success Industry-University International Assessment & Management Symmetry Realistic Expectations Timing

Acquisitions Advantages Disadvantages Established Business Location Established Marketing Structure Cost Existing Employees Opportunity For Creativity Disadvantages Marginal Success Record Overconfidence Key Employee Loss Over Valued

Acquisition Process Valuation- Synergy Deal Structure Locating Candidates- Broker

Merger Motivation Leveraged Buyout Survival Protection Diversification Gain Leveraged Buyout Reasonable Price Debt Capacity Appropriate Financial Package

Resource Negotiation Tasks Reservation Price- Bargaining Zone Distribution Integration Reservation Price- Bargaining Zone Assessments No Agreement- Buyer & Seller? Issues- Importance?

Negotiation Strategies Build Trust/Share Information Ask Questions Multiple Offers Mutually Beneficial Trade-Offs