1. SELECT A TYPE OF OWNERSHIP
Entrepreneurship
4/21/2017
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
Chapter 4

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

3. ADVANTAGES OF BUYING AN EXISTING BUSINESS
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ADVANTAGES OF BUYING AN EXISTING BUSINESS
The existing business already has customers, suppliers, and procedures.
The seller of a business may train a new owner.
There are prior records of revenues, expenses, and profits.
Financial arrangements can be easier.

4. DISADVANTAGES OF BUYING AN EXISTING BUSINESS
Chapter 4
DISADVANTAGES OF BUYING AN EXISTING BUSINESS
Many businesses are for sale because they are not making a profit. (Owners frequently try to sell businesses that are not financially viable.)
Serious problems may be inherited. (Businesses can have poor reputations with customers, have trouble with suppliers, or be poorly located.)
Capital is required. (Many entrepreneurs just do not have the money to purchase a business. Starting a small business of their own may be their only option.)

5. STEPS TO PURCHASE A BUSINESS
Entrepreneurship
4/21/2017
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 for its sale etc.)
Visit during business hours to observe the company in action. (Inspect the facility closely to make sure that it meets your needs.)
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. (get a list of all assets)
Determine how you would finance the business.
Get expert help to determine a price to offer for the business
Chapter 4

6. ENTER A FAMILY BUSINESS
Chapter 4
ENTER A FAMILY BUSINESS
Advantages of a family business
Enjoy the pride and sense of mission that comes with being part of a family enterprise.
Enjoy the fact that their businesses remain in the family for at least one more generation.
Some enjoy working with relatives and knowing that their efforts are benefiting others whom they care about.
Disadvantages of a family business
Senior management positions are often held by family members, regardless of their ability.
Poor business decisions are made.
Difficult to retain good employees who are not members of the family.
The distinction between business life and private life is blurred in family-owned businesses. (ends up affecting family life as well)

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

8. 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.

9. OPERATING COSTS OF A FRANCHISE
Chapter 4
OPERATING COSTS OF A FRANCHISE
Initial franchise fee – fee the franchise owner pays in return for the right to run the franchise.
Start-up costs – the costs associated with beginning a business. They include the costs of renting a facility, equipping the outlet, and purchasing inventory.
Royalty fees – are weekly or monthly payments made by the owner of the franchise to the seller of the franchise. The payments are usually a percentage of your franchise’s income.
Advertising fees – fees paid to support television, magazine, or other advertising of the franchise as a whole.

10. ADVANTAGES OF OWNING A FRANCHISE
Chapter 4
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.

11. DISADVANTAGES OF OWNING A FRANCHISE
Chapter 4
DISADVANTAGES OF OWNING A FRANCHISE
Franchises can cost a lot of money and cut down on profits.
Owners of franchises have less freedom to make decisions than other entrepreneurs.
Franchisees are dependent on the performance of other franchisees in the chain.
The franchisor can terminate the franchise agreement.

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

13. STARTING YOUR OWN BUSINESS
Chapter 4
STARTING YOUR OWN BUSINESS
Advantages of starting your own business
Make decisions about everything from where to locate the business to how many employees to hire to what prices to charge.
Completely independent and create their own destinies.
Great satisfaction in starting their own business.
Challenge (feeling of triumph).
Disadvantages of starting your own business
Risk.
Estimate demand for your product or service.
No certainty that customers will purchase what you offer.

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

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

16. 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

17. PARTNERSHIP Shared decisions Shared investment Shared risk
Chapter 4
PARTNERSHIP
Shared decisions
Shared investment
Shared risk
Disadvantages
Sharing responsibilities and profits with others. (disagreements)
Fear of being held legally liable for the errors of their partners.
Partnership agreement

18. CORPORATION Share of stock – a unit of ownership in a corporation
Chapter 4
CORPORATION
Share of stock – a unit of ownership in a corporation
Board of directors – group of people who meet several times a year to make important decisions affecting the company.
Dividends – distributions of profits to shareholders by corporations.
Disadvantages
More complicated than setting up a sole proprietorship or a partnership
Costly
Subject to much more government regulations (paperwork)
Pays taxes on its income, and shareholders pay taxes on the dividends received. (taxed as corporate income and again as individual income.)
Why incorporate?
Liability is the main reason (the amount owed to others.)
Allows businesses to raise money by selling more stock.
Lenders are also more willing to lend money to corporations than to sole proprietorships or partnerships.
Shareholders do not affect the management of a corporation

19. 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.

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