Entrepreneurship To start a new business, buy an existing business, or buy a Franchise.
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Transcript of Entrepreneurship To start a new business, buy an existing business, or buy a Franchise.
Entrepreneurship
To start a new business,buy an existing business, or buy a Franchise
Start a new Business
• Define the nature of the business• Create preferred type of physical
facilities• Obtain fresh inventory• Make all initial personnel decisions• Latest technology & materials
available• Select a competitive environment
Not to start a new business• Problems finding the right business• Assembling the resources; Location,
building, equipment, materials, employees
• Lack of established product line• Production problems; start up • Lack of established market & distribution• Risk of failure higher then Buying existing
business or Franchise
Buy an existing business
• Personnel are already working• Facilities are already available • A product is already reaching a market• The location may be desirable• Relations with banks and trade creditors• Revenues and profits are being
generated• Goodwill already exists
Not to buy existing business• Physical facilities may be old or obsolete• Employees may have poor attitude• Accounts receivable may be
uncollectible• Location may be bad• May have poor financial standing• Inventory may be obsolete or in poor
quality
Questions to ask before Buying an existing business• Why is it for sale• Are facilities suitable
for future operations• Is the business
operating efficiently• Financial condition• Is the price fair• Do you have
necessary ability
Steps in Purchasing a Business• Write specific objectives about the
kind of business you want to buy.– Identify businesses for sale that meet
the objectives.
• Meet with business sellers or brokers to identify specific opportunities.
• Obtain accounting records for the prior three years.
• Get important information in writing. – reviewed by a lawyer– reviewed by an accountant
Visit during business hours to observe the business in action.
• Get expert help to determine the price to offer for the business.
Determine how you would finance the business.
Franchise Ownership
• franchise– a legal agreement that gives an individual
the right to market a company’s products or services in a particular area
• franchisee– the person who purchases a franchise
• franchisor– the company that offers the franchise for
purchase
Operating Costs of a Franchise• initial franchise fee
– the amount the local franchise owner pays in return for the right to run the franchise
• startup costs– the costs associated with running a
business
– weekly or monthly payments made by the local owner to the franchise company
• advertising fees– paid to the franchise company to
support television, magazine, or other advertising of the franchise as a whole
royalty fees
Investigate the Franchise Opportunity• The FTC requires franchise sellers
to provide detailed disclosure information at least 10 business days before finalizing a purchase.
• The disclosure document should include the following:– contact information for at least ten
previous purchaser who live nearest to you
– background and experience of the business’s key executives
– cost of starting and maintaining the business
– the responsibilities you and the seller will have once you have invested in the opportunity
the fully audited financial records of the seller
Evaluate a Franchise
• Study the disclosure document and proposed contract carefully.– All costs and royalty fees should be
provided.
• Interview current owners.– shills
• business references who are paid to give favorable reports
• Investigate claims about your potential earnings.– Does projected local demand match
potential earnings?
• Have the seller provide, in writing, the number and percentage of owners who have done as well as they claim you will.
Research the franchisor’s history and profitability.
– Do not sign up immediately.– Do not fall for a promise of easy money.
• Shop around.– Compare services offered by similar
franchisors.
Listen carefully to sales presentations.
• Determine what will happen if you want to cancel the franchise agreement.
• Ask for advice from professionals.
Get the seller’s promises in writing.
Advantages of Owning a Franchise• An 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.
Disadvantages of Owning a Franchise• Franchise fees can be costly and
cut down on profits.• Owners of franchises have less
freedom to make decisions than other entrepreneurs.
• The franchisor can terminate the franchise agreement.
Franchisees are dependent on the performance of other franchises in the chain.
The End