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.

Visit during business hours to observe the business in action. Obtain accounting records for the prior three years. Get important information in writing. reviewed by a lawyer reviewed by an accountant

Determine how you would finance the business. Get expert help to determine the price to offer for the business.

Franchise Ownership franchise franchisee franchisor 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

royalty fees advertising fees 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

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

the fully audited financial records of the seller 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

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

Research the franchisor’s history and profitability. 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.

Listen carefully to sales presentations. Do not sign up immediately. Do not fall for a promise of easy money. Shop around. Compare services offered by similar franchisors.

Get the seller’s promises in writing. Determine what will happen if you want to cancel the franchise agreement. Ask for advice from professionals.

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.

Franchisees are dependent on the performance of other franchises in the chain. The franchisor can terminate the franchise agreement.

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