SELECT A TYPE OF OWNERSHIP

1. Chapter 4 SELECT A TYPE OF OWNERSHIP 4.1 Run an Existing Business 4.2 Own a Franchise or Start a Business 4.3 Choose the Legal Form of Your Business

2. Chapter 4 Lesson 4.1RUN AN EXISTING BUSINESS • Identify 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. GOALS

3. Chapter 4 Purchasing an Existing Business • Owners may sell their businesses for a variety of reasons • Insufficient sales or profits • Worry about competition • Retirement • Death or Illness of partner • Owner’s desire to do something different

4. Chapter 4 Purchasing an Existing Business • There are many ways to find out what businesses are for sale • Advertisements in the classified section of paper • SBA or Chamber of Commerce • A business broker • Person who sells businesses for a living

5. Chapter 4 ADVANTAGES OF BUYING AN EXISTING BUSINESS • The existing business already has customers, suppliers, and procedures. • May have also built up good will and customer loyalty • The seller of a business may train a new owner. • Experienced employees can help train the new owner

6. Chapter 4 Advantages of Buying an Existing Business • There are prior records of revenues, expenses, and profits. • Financial planning is easier and more reliable • Financial arrangements can be easier. • Seller may accept an initial partial payment and allow the rest to be paid off in monthly installments

7. Chapter 4 DISADVANTAGES OF BUYING AN EXISTING BUSINESS • Many businesses are for sale because they are not making a profit. • Owners try to sell businesses that are not financially profitable • Serious problems may be inherited. • Can have poor reputations with customers, have trouble with suppliers or be poorly located • Capital is required. • Many people just do not have the money to buy an existing business

8. Chapter 4 STEPS TO PURCHASE A BUSINESS • Write 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 it is for sale and its financial performance • Visit during business hours to observe the company in action. • Inspect the facility

9. Chapter 4 Steps to Purchase a Business • 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. • Determine how you would finance the business. • Get expert help to determine a price to offer for the business • A valuator can help • Valuator: an expert on determining the value of a business

10. Chapter 4 The Family Business • The US Economy is dominated by family businesses • It is estimated that 90% of all business are owned by families • Ford Motor Company

11. Chapter 4 ENTER A FAMILY BUSINESS • Advantages of a family business • Enjoy the pride or sense of mission • Enjoy working with people you know • Efforts are benefiting those they care about • Disadvantages of a family business • Senior positions are held by people regardless of their ability • Difficulty to maintain employees outside your family • Business problems end of affecting family life

12. Chapter 4 Lesson 4.2OWN A FRANCHISE OR START A BUSINESS • Evaluate franchise ownership. • Recognize the advantages and disadvantages of starting a new business. GOALS

13. Chapter 4 FRANCHISE OWNERSHIP • A 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.

14. Chapter 4 Franchise Ownership • More than 500,000 people in the US owne franchises and the number is growing. • Franchising opportunities are available in virtually every field, from motels to pet stores to video outlets • Sources you can find information about franchises include • Consumer Guides • Books • Wall Street Journal • Magazines

15. Chapter 4 OPERATING COSTS OF A FRANCHISE • Initial franchise fee • Fee the franchise owner pays in return for the right to run the franchise • Usually non-refundable and a few thousand to a few hundred thousand dollars • Start-up costs • Costs associated with beginning a business • Royalty fees • Weekly or monthly paymnets made by the owner of the franchise to the seller of the franchise • Usually a percentage of the franchises income • Advertising fees • Fees paid to support TV, magazine or other advertising of the franchise as a whole

16. Chapter 4 ADVANTAGES OF OWNING A FRANCHISE • An entrepreneur is provided with an established product or service. • Can compete with giant companies • Franchisors offer management, technical, and other assistance. • Onsite training or classes and tips • Equipment and supplies can be less expensive. • Because franchises are part of large chains, they are able to purchase in huge quantities • Discounts passed on to individual franchisee • A guarantee of consistency attracts customers. • Customers know quality of franchise

17. Chapter 4 DISADVANTAGES OF OWNING A FRANCHISE • Franchises can cost a lot of money and cut down on profits. • Initial capital to buy franchise is high • Often profits you receive as franchisee must be reutrned to franchisor as royalty fees • Owners of franchises have less freedom to make decisions than other entrepreneurs. • Franchisees can only offer certain products and services that have already been decided by franchisor • Franchisees are dependent on the performance of other franchisees in the chain. • Customers opinions and other franchise reputations follow you around • The franchisor can terminate the franchise agreement. • If franchisee fails to pay royalty fees, or meet other agreements, the franchise can be lost

18. Chapter 4 EVALUATING A FRANCHISE • Demand for product or service • Exclusive territory • Costs • Profitability • Longevity • Services provided by franchisor • Loss of independence • Cancellation

19. Chapter 4 STARTING YOUR OWN BUSINESS • Advantages of starting your own business • Disadvantages of starting your own business

20. Chapter 4 Lesson 4.3CHOOSE THE LEGAL FORM OF YOUR BUSINESS • Evaluate the different legal forms for a business. GOALS

21. Chapter 4 TYPES OF BUSINESS ARRANGEMENTS • Sole proprietorship • Partnership • Corporation • S corporation

22. Chapter 4 SOLE PROPRIETORSHIP • A 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. • Disadvantages • Investment • Risk

23. Chapter 4 PARTNERSHIP • Shared decisions • Shared investment • Shared risk • Disadvantages • Partnership agreement

24. Chapter 4 CORPORATION • Share of stock • Board of directors • Dividends • Disadvantages • Why incorporate?

25. Chapter 4 S CORPORATION • An S corporation is a corporation organized under subchapter S of the Internal Revenue Code whose income is taxed as a partnership.

26. Sole Proprietorship Partnership Corporation S Corporation FEATURE Chapter 4 CHARACTERISTICS OF THE LEGAL FORMS OF BUSINESS Simple to start Decisions made by one person Low initial cost Limited liability Limited government regulation Ability to raise capital Double taxation of profits