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SELECTING A TYPE OF OWNERSHIP

This guide explains the advantages and disadvantages of buying an existing business, entering a family business, and owning a franchise. It includes steps to purchasing a business and evaluating a franchise opportunity.

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SELECTING A TYPE OF OWNERSHIP

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  1. SELECTING A TYPE OF OWNERSHIP CHAPTER 2

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

  3. 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

  4. 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)

  5. 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 $$$

  6. 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. 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

  8. 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.

  9. ENTERING A FAMILY BUSINESS Advantages: • Some enjoy working with their family • Benefiting those they care about • Stays in the family • Pride

  10. ENTERING A FAMILY BUSINESS Disadvantages: • Management (regardless of ability) • Retain good employees (not family) • Family politics • Business vs. Private lives

  11. FRANCHISE OWNERSHIP A legal agreement that gives an individual the rights to market a company’s products or services in a particular are.

  12. FRANCHISE OWNERSHIP • Franchisee • Franchisor • Initial Franchise Fee • Royalty Fees • Advertising Fees

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

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

  15. 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.

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

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

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

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

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

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

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

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

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