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Buying Existing and Turnaround Businesses Opening Franchises. Patterns of Entrepreneurship Chapter 12 – PowerPoint PPT presentation

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Title: Project Management Process - As Is Version


1
Buying Existing and Turnaround Businesses Opening
Franchises.
Patterns of Entrepreneurship Chapter 12
2
Choosing the Right Business
  • Buying an Existing Business
  • Risks and reasons the business is for sale
  •    The Business is not Adequately Capitalized
  •         The Pressures of Business and Personal
    Finances
  •         The Owners Lose Interest or the Death of
    a owner

3
Primary Advantages to Consider when Buying an
Existing Business.
  • Established Business
  • Lower Costs
  • Fewer Personnel Changes
  • More Established Policies

4
Primary Disadvantages to Consider when Buying an
Existing Business.
  • Negative Motivation on the Part of the Seller
  • Key Employee Losses.
  • Overvaluation

5
BUYING A TURNAROUND BUSINESS
  • There are three categories of a business that
    should be evaluated in the turnaround plan.
  • The business assets that can be evaluated in
    terms of book or market value.
  • The business operations to examine sale trends,
    credit policies, pricing, promotional activities,
    and distribution systems. Also, the buyer will
    want to understand human-resources issues,
    including how the owners personal skills and
    abilities influence operations and whether
    capable employees will stay after acquisition.
  • The evaluation of the business environment.

6
Guidelines for Purchasing Turnarounds
  • Market and Product Offering. The concept for
    what product or service the company will offer
    must become clear before the business can succeed
  • Determining the Margin or Profit for the
    Business. Profit margins vary with the industry,
    but the product must sell to the end user for at
    least four to five times the direct costs and
    labor and materials needed to produce it.
  • Achieving Sales. Obtaining a few sales or one
    big sale are not enough for a sustainable
    business

7
Guidelines for Purchasing Turnarounds
  • Financial Controls. The projected financial
    statement is an important tool for managing the
    business successfully
  • Analyzing Gross Profit Statements. The gross
    profit analysis will describe, by product line,
    where the gross profit is generated.

8
I Guidelines for Purchasing Turnarounds
  • Analyzing Income Statements. The income
    statement shows where the business is going by
    summarizing how much the entrepreneur is selling,
    spending, and earning from the operations
  • Analyzing Cash Flow Statements. No matter how
    profitable the business is, it is critical to
    manage the cash effectively.

9
Introduction to Franchising
  • What is franchising?
  • A franchise is an arrangement by the
    manufacturer or sole distributor of a trademarked
    product or service that provides exclusive rights
    of local distribution to independent retailers in
    return for their payment of royalties. 

10
Introduction to Datamark
Evaluating a Potential Franchiser
  •         What is the franchisers reputation?
  •         Is the franchiser now involved in any
    litigation?
  •         Is training and start-up assistance
    available?
  •         What is the management structure of the
    organization?
  •         Is the location and territory protected?
  •         What are the operating practices of the
    franchise?
  •         What are the franchises start-up costs?
  •         How can the purchase be financed?
  •         What are the terms of renewal and
    termination of the contract or agreement?
  •  

11
Evaluation of a Franchise
Buying a franchise
  • A franchise can be a very attractive way to
    operate ones own business because of the
    following advantages
  • Proven Product
  • Established Business Plan
  • Financing Assistance
  • Knowledge of Market and Capital Assistance
  • Attained success stories

12
Disadvantages of Franchising
  •   Restrictions in Decision-Making. Unlike
    starting ones own venture, the entrepreneur will
    not be his or her own boss.
  •      High Start-Up Expenses. The initial
    franchise fee is frequently non-refundable and is
    often a sizable amount..
  •         Selection and Price Restrictions. The
    franchisee may be restricted in establishing
    selling prices, introducing new products and
    services, and adjusting the supply cycles to meet
    current demands..
  •  

13
Analyzing the Franchise Fee Structure
  • Initial franchise fees the initial fee is a
    single payment by the buyer to acquire the
    franchise rights
  • Royalties The heart of a franchise program is
    the ongoing income derived from sales. There are
    several ways to structure royalties, but the most
    common is a percentage of gross sales.
  • Service to franchisees Franchise agreements can
    specify fees for which franchisees pay a retainer
    or periodic fee.

14
Analyzing the Franchise Fee Structure
  • Promotional feesNational promotion and
    advertising fees are specified in the franchise
    agreement. This can be a small percentage of
    sales, seldom any more than 1 percent, or a flat
    monthly fee.
  • Periodically, additional fees are collected for
    joint promotional campaigns.  
  • Real estate income New franchise outlets that
    require unique physical facilities are usually
    built by franchisers and leased to franchisees.
  • Examples include stand-alone 7-Eleven markets,
    Jiffy Lube garages, and McDonalds restaurants.
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