Presentation on theme: "SELECT A TYPE OF OWNERSHIP"— Presentation transcript:
1 SELECT A TYPE OF OWNERSHIP Entrepreneurship4/21/2017Chapter 4SELECT A TYPE OF OWNERSHIP4.1 Run an Existing Business4.2 Own a Franchise or Start a Business4.3 Choose the Legal Form of Your BusinessChapter 4
2 Lesson 4.1 RUN AN EXISTING BUSINESS Chapter 4Lesson 4.1 RUN AN EXISTING BUSINESSGOALSIdentify the advantages and disadvantages of purchasing an existing business.Explain the steps involved in buying a business.Recognize the advantages and disadvantages of joining a family business.
3 ADVANTAGES OF BUYING AN EXISTING BUSINESS Chapter 4ADVANTAGES OF BUYING AN EXISTING BUSINESSThe existing business already has customers, suppliers, and procedures.The seller of a business may train a new owner.There are prior records of revenues, expenses, and profits.Financial arrangements can be easier.
4 DISADVANTAGES OF BUYING AN EXISTING BUSINESS Chapter 4DISADVANTAGES OF BUYING AN EXISTING BUSINESSMany businesses are for sale because they are not making a profit. (Owners frequently try to sell businesses that are not financially viable.)Serious problems may be inherited. (Businesses can have poor reputations with customers, have trouble with suppliers, or be poorly located.)Capital is required. (Many entrepreneurs just do not have the money to purchase a business. Starting a small business of their own may be their only option.)
5 STEPS TO PURCHASE A BUSINESS Entrepreneurship4/21/2017Chapter 4STEPS TO PURCHASE A BUSINESSWrite specific objectives about the kind of business you want to buy, and identify businesses for sale that meet your objectives. (This will help you find the right business for what you want to do)Meet with business sellers or brokers to investigate specific opportunities. (ask about the history of the business, the reason for its sale etc.)Visit during business hours to observe the company in action. (Inspect the facility closely to make sure that it meets your needs.)Ask the owner to provide you with a complete financial accounting of operations for at least the past three years.Ask for important information in written form. (get a list of all assets)Determine how you would finance the business.Get expert help to determine a price to offer for the businessChapter 4
6 ENTER A FAMILY BUSINESS Chapter 4ENTER A FAMILY BUSINESSAdvantages of a family businessEnjoy the pride and sense of mission that comes with being part of a family enterprise.Enjoy the fact that their businesses remain in the family for at least one more generation.Some enjoy working with relatives and knowing that their efforts are benefiting others whom they care about.Disadvantages of a family businessSenior management positions are often held by family members, regardless of their ability.Poor business decisions are made.Difficult to retain good employees who are not members of the family.The distinction between business life and private life is blurred in family-owned businesses. (ends up affecting family life as well)
7 Lesson 4.2 OWN A FRANCHISE OR START A BUSINESS Chapter 4Lesson 4.2 OWN A FRANCHISE OR START A BUSINESSGOALSEvaluate franchise ownership.Recognize the advantages and disadvantages of starting a new business.
8 Chapter 4FRANCHISE OWNERSHIPA franchise is a legal agreement that gives an individual the right to market a company’s products or services in a particular area.A franchisee is the person who purchases a franchise agreement.A franchisor is the person or company that offers a franchise for purchase.
9 OPERATING COSTS OF A FRANCHISE Chapter 4OPERATING COSTS OF A FRANCHISEInitial franchise fee – fee the franchise owner pays in return for the right to run the franchise.Start-up costs – the costs associated with beginning a business. They include the costs of renting a facility, equipping the outlet, and purchasing inventory.Royalty fees – are weekly or monthly payments made by the owner of the franchise to the seller of the franchise. The payments are usually a percentage of your franchise’s income.Advertising fees – fees paid to support television, magazine, or other advertising of the franchise as a whole.
10 ADVANTAGES OF OWNING A FRANCHISE Chapter 4ADVANTAGES OF OWNING A FRANCHISEAn entrepreneur is provided with an established product or service.Franchisors offer management, technical, and other assistance.Equipment and supplies can be less expensive.A guarantee of consistency attracts customers.
11 DISADVANTAGES OF OWNING A FRANCHISE Chapter 4DISADVANTAGES OF OWNING A FRANCHISEFranchises can cost a lot of money and cut down on profits.Owners of franchises have less freedom to make decisions than other entrepreneurs.Franchisees are dependent on the performance of other franchisees in the chain.The franchisor can terminate the franchise agreement.
12 EVALUATING A FRANCHISE Chapter 4EVALUATING A FRANCHISEDemand for product or serviceExclusive territoryCostsProfitabilityLongevityServices provided by franchisorLoss of independenceCancellation
13 STARTING YOUR OWN BUSINESS Chapter 4STARTING YOUR OWN BUSINESSAdvantages of starting your own businessMake decisions about everything from where to locate the business to how many employees to hire to what prices to charge.Completely independent and create their own destinies.Great satisfaction in starting their own business.Challenge (feeling of triumph).Disadvantages of starting your own businessRisk.Estimate demand for your product or service.No certainty that customers will purchase what you offer.
14 Lesson 4.3 CHOOSE THE LEGAL FORM OF YOUR BUSINESS Chapter 4Lesson 4.3 CHOOSE THE LEGAL FORM OF YOUR BUSINESSGOALSEvaluate the different legal forms for a business.
15 TYPES OF BUSINESS ARRANGEMENTS Chapter 4TYPES OF BUSINESS ARRANGEMENTSSole proprietorshipPartnershipCorporationS corporation
16 Chapter 4SOLE PROPRIETORSHIPA business that is owned exclusively by one person is a sole proprietorship.Sole proprietorship is the most common form of ownership in the United States.DisadvantagesInvestmentRisk
17 PARTNERSHIP Shared decisions Shared investment Shared risk Chapter 4PARTNERSHIPShared decisionsShared investmentShared riskDisadvantagesSharing responsibilities and profits with others. (disagreements)Fear of being held legally liable for the errors of their partners.Partnership agreement
18 CORPORATION Share of stock – a unit of ownership in a corporation Chapter 4CORPORATIONShare of stock – a unit of ownership in a corporationBoard of directors – group of people who meet several times a year to make important decisions affecting the company.Dividends – distributions of profits to shareholders by corporations.DisadvantagesMore complicated than setting up a sole proprietorship or a partnershipCostlySubject to much more government regulations (paperwork)Pays taxes on its income, and shareholders pay taxes on the dividends received. (taxed as corporate income and again as individual income.)Why incorporate?Liability is the main reason (the amount owed to others.)Allows businesses to raise money by selling more stock.Lenders are also more willing to lend money to corporations than to sole proprietorships or partnerships.Shareholders do not affect the management of a corporation
19 Chapter 4S CORPORATIONAn S corporation is a corporation organized under subchapter S of the Internal Revenue Code whose income is taxed as a partnership.
20 CHARACTERISTICS OF THE LEGAL FORMS OF BUSINESS Chapter 4CHARACTERISTICS OF THE LEGAL FORMS OF BUSINESSSole ProprietorshipPartnershipCorporationS CorporationFEATURESimple to startDecisions made by one personLow initial costLimited liabilityLimited government regulationAbility to raise capitalDouble taxation of profits