Title: Project Management Process - As Is Version
1Buying 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 -
3Primary Advantages to Consider when Buying an
Existing Business.
- Established Business
- Lower Costs
- Fewer Personnel Changes
- More Established Policies
4Primary Disadvantages to Consider when Buying an
Existing Business.
- Negative Motivation on the Part of the Seller
- Key Employee Losses.
- Overvaluation
5BUYING 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.
6Guidelines 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
7Guidelines 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.
8I 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.
9Introduction 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.
10Introduction 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? -
11Evaluation 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
12Disadvantages 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.. -
13Analyzing 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.
14Analyzing 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.