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Select a Type of Ownership

Chapter 3. Select a Type of Ownership. Do a Google search of “ google ” How many results are found? Who are Google’s users? How does Google make money?. Google. 3.1 – Run an Existing Business 3.2 – Own a Franchise or Start a Business 3.3 – Choose the Legal Form of Your Business.

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Select a Type of Ownership

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  1. Chapter 3 Select a Type of Ownership

  2. Do a Google search of “google” • How many results are found? • Who are Google’s users? • How does Google make money? Google

  3. 3.1 – Run an Existing Business 3.2 – Own a Franchise or Start a Business 3.3 – Choose the Legal Form of Your Business Chapter 3: type of ownership

  4. Lesson 3.1 Run an Existing Business

  5. You will be able to: • List the reasons for wanting or not wanting to purchase an existing business in our community. 3.1 assignment

  6. Why is the business for sale? • Insufficient sales or profits • New competition • New economic conditions • Retirement • Partner challenges • Owner’s interests changed Choosing an existing business

  7. Local newspaper advertisements • Business Broker • Person who sells businesses for a living • People in the industry • Others • Landlords, leasing agents, lawyers and bankers, management consultant, SBA, Chamber of Commerce, bankruptcy announcement Finding businesses for sale

  8. Look through the classified ads online to find local businesses for sale in Connecticut. www.classifiedads.com Jobs & Employment – Business Opportunities What kinds of businesses did you find? What are the prices of the businesses? Classified advertisements

  9. Existing customer base, suppliers, procedures Training from seller Prior financial records Financial arrangements can be easier Advantages to existing business

  10. Not making profit • Not financially viable • Serious problems may be inherited • Poor reputation, trouble with suppliers, poor location • Capital is required • Name a local business that closed recently. Why did it close? Disadvantages to existing business

  11. Write your business objective and identify businesses for sale in the industry • Writing it down will help you find the right business for you • Meet with sellers or brokers to investigate opportunities • Observe the company in action • During regular business hours Steps to buying a business

  12. Retain financial records of past three years • Get important information in writing • Determine how you would finance the business (“how to” startup guides) • Get expert help to determine a price to offer • Valuator (expert on determining the value of a business) • Bank loan vs. financing through owner Steps to buying a business con’t

  13. Using the business you found in the previous activity: • Come up with five to seven questions to the owner about the sale of the business. research

  14. Enter a family business Lesson 3.1 continued

  15. Family business owners enjoy the pride and sense of mission that comes with being part of a family enterprise. Remain in the family for at least 1 generation Enjoy working with relatives Benefits people they care about Advantages of a family business

  16. Family members hold high management positions regardless of their ability. • Poor business decisions can be made • Difficult to retain good employees who are not family • Family politics interfere with decision making • Business life affecting private life Disadvantages of a family business

  17. What family owned businesses are located here in West Hartford? • Elmwood Pastry Shop • Jac’s Cleaning Service • S.K. Lavery Appliance Company • South Street Automotive Local family owned businesses

  18. What should you consider before purchasing an existing business? • Why the business is for sale, general operations, problems with customers, suppliers, location. • What are some of the advantages and disadvantages of entering a family business? • Advantages: sense of family pride • Disadvantages: blurring of family/business life, not being able to make all decisions Review 3.1

  19. Choose 2 or 3 local competitors (Chamber of Commerce website). Write down at least 3 reasons why you would or would not consider buying each of these companies if they were for sale 3.1 assignment

  20. Lesson 3.2 Own a franchise or start a business

  21. Start your own vs. buy a franchise What are some franchises you would consider purchasing?

  22. You will be able to: • Gather information about purchasing a franchise. • Create an advertisement offering to sell franchises of your business to prospective owners. 3.2 assignment

  23. Franchise – legal agreement that gives an individual the right to market a company’s products or services in a particular area. • Franchisee – person purchasing franchise • Franchisor – person or company offing the franchise purchase Franchise ownership

  24. Buying a Franchise: A Consumer Guide • Federal Trade Commission • Books • The Wall Street Journal • Magazines: Forbes, Barron’s, Entrepreneur, and Inc. • The Franchise Opportunities Handbook • U.S. Dept. of Commerce • 1,400 + franchise opportunities by category Resources

  25. What are some advantages of each? Do an internet search for franchise opportunities in your business field. http://www.franchisehandbook.com/ What is the cost of purchasing the franchise? Is there financing available through the franchise? Franchise vs. your own business

  26. Initial franchise fee • Fee paid by franchisee in return for the right to run the franchise • Range: few thousand dollars to few hundred thousand dollars • Startup costs • Costs associated with beginning a business Operating costs

  27. Royalty fees • Weekly or monthly payment made by the franchisee to the franchisor • Percent of franchise income • Advertising fees • Local and nationwide • Supports TV, magazine, and other ads Operating costs con’t

  28. Direct Measurables • Fees, royalty rates, and total investment • Market Impact • Recognition of trademark, maturity of the franchisor, thoroughness of training programs • Intangibles • Culture of network, leadership style, mood of franchisees, “success quotient” of franchisors Things to consider

  29. Uniform Franchise Offering Circular • A.K.A. – Franchise Disclosure Document (FDD) • Document provided from franchisor before the purchase of the franchise • Items describing various aspects of franchise • Financial Statements • Franchise Agreements UFOc

  30. Established product/service • Competition with giant companies • Franchisor assistance • Management, technical, other • Onsite training or classes • Starting the business, daily operations, crisis management, location, building design, equipment purchases. Advantages of owning a franchise

  31. Equipment & Supplies Savings • Buying in bulk is less expensive • Consistency Attracts Customers • Mandated quality no matter the location Advantages con’t

  32. Why are international franchises becoming a popular way of doing business? What should an entrepreneur consider before expanding abroad? International franchise, pg. 69

  33. Costly and reduce profits • High initial capital and portion of the profits are returned to the franchisor • Less freedom • Initial decisions already made • Sale of certain products/services and prices already set • Contradicts some reasons for becoming an entrepreneur in the first place Disadvantages of owning a franchise

  34. Dependent on performance of other franchises • Sloppy operations will impact customer opinions across the board • Termination of franchise agreement • Failure to pay or meet other conditions can result in termination • Upon expiration the franchisor can decide not to renew the agreement Disadvantages con’t

  35. How can franchises be affected by other franchises in the chain? Advantages vs. disadvantages

  36. Location demands and exclusive territory in my area? Costs & royalty fees? Current profitable franchises and reputation? Length of time as a franchise? Profit for franchisor? Services provided by franchisor? Benefits provided worth the loss of independence and cost of purchase? Cancelation of franchise agreement? Evaluate a franchise

  37. Low startup costs -> little investment in equipment and building sites High startup costs -> brand-name recognition, specialized equipment and processes, and storefront locations Low-cost franchises

  38. False/misleading claims • Written financial statements • High-pressure sales tactics • Signing the agreement right away • Allow time to read and understand the UFOC • Lawsuits filed against company? • Consult your attorney before hand • Oral promises included in the contract Caution!

  39. Kid’s Closet Connection • Go to www.kidscloset.biz and • research the following information: • Startup Cost & Royalty Fees • Territories available • Financing through Kid’s Closet • Services available • Would you consider purchasing a Kid’s Closet Franchise? Why or why not?

  40. start your own business Lesson 3.2 continued

  41. Advantages Disadvantages • Decisions are yours • Location • Employees • Prices to charge • Products to sell • Independent • Satisfaction of doing it on your own • Risky • Estimate demand for your product/service • No certainty • Decisions are yours alone • Location • Employees • Prices to charge • Products to sell Advantages vs. disadvantages

  42. Debate the pros and cons of starting a business from scratch for each of the following areas: restaurant, retail gift shop, and home improvement. Failure leads to success (as long as the entrepreneur learns from their mistakes) Group work

  43. (as long as the entrepreneur learns from their mistakes) Failure leads to success

  44. Find franchise opportunities available in your business field. Gather information such as franchise fees, royalties, projected earnings, and operating costs. If you start your own business, assume you will decide to franchise it. Write an advertisement offering to sell franchises of your business to prospective owners. 3.2 assignment

  45. Lesson 3.3 Choose the legal form of your business

  46. You will be able to: • Write the partnership agreementbetween you and your business partner. • List the advantages and disadvantages of becoming an S corporation 3.3 assignment

  47. Name some local businesses, how are they owned? • Sole Proprietorship • Owned by one person • Partnership • Owned by two or more people • Corporation • Legal rights lie with a person independent of the owners • Businesses ending with Inc., Corp., and LTD • What happens to the debt of a failed business? Forms of business ownership

  48. advantages disadvantages • Little gov’t control • Tax records • Employee laws • Run simply and smoothly • Raising money to start • Only person contributing financially • Debt directly connected with owner One person in control of all business aspects, can range in size from very small with just a few employees or large with 100 employees. Sole proprietorship

  49. advantages disadvantages • Initial capital investment shared between partners • Losses shared between partners • Multiple areas of expertise • Little gov’t control • Sharing responsibilities and profits • Legally liable for errors made by partner Two or more owners partnership

  50. States, in writing, the rights and responsibilities of each owner: • Name of business • Type and value of investment • Managerial and rights • Accounting method • Division of profits and losses • Salaries • Duration of partnership • Dissolution • Distribution of assets upon dissolution • Procedures dealing with death of a partner Partnership agreements

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