1. Chapter Becoming the Owner of a Small Business 4

2. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Decide to go into business? Search for a needed product Study the market for the product New business, existing one, or franchise? Strategic plan (mission, objectives, strategies) Operational plans (policies, budgets, standards, planning and marketing the product) Financial plans (estimating income and expenses, initial investment, locating sources of funds) Develop detailed business plan Implement plan

3. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Niche Marketing The process of finding a small but profitable demand for something, then producing a custom-made product for that market. Don’t forget to look at the past for a “new” product Hobbies, recreation, and working at home can lead to creation of new products

4. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Questions to Ask to Help Eliminate Possible Businesses How much capital is required to enter and compete successfully in this business? How long will it take to recoup my investment? How long will it take to reach an acceptable level of income? How will I live until that time? What degree of risk is involved? Am I willing to take that risk? Can I make it on my own, or will I need the help of my family or others? continued

5. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Questions to Ask to Help Eliminate Possible Businesses (cont’d) How much work is involved in getting the business going? In running it? Am I willing to put out that much effort? Do I want to acquire a franchise from an established company, or do I want to start from scratch and go it on my own? What is the potential of this type of business? What are my chances of achieving that potential? Is sufficient information available to permit reaching a meaningful decision? If so, what are the sources of information? Is it something I would enjoy?

6. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Places to look for help SCORE – Service Corps of Retired Executives A group of retired managers from all walks of life who help people develop their business ideas. (388 chapters) SBA US Department of Commerce Local colleges Public libraries Chambers of commerce

7. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Market Research Gathering, recording, and analyzing of data related to the marketing of goods and services. Library US Census (10 yrs) (census.gov)

8. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Estimating the Size of the Market ? How large is the industry? ? Where is the market for the company, and how large is it? ? Are sales to be made to a selected age group, and, if so, how large is that group? ? What are the size and distribution of income within the population? continued

9. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Estimating the Size of the Market (continued) ? Is the sales volume for this kind of business growing, remaining stable, or declining? ? What are the number and size of competitors? ? What is the success rate for competing businesses? ? What are the technical aspects (state of the art) of the industry?

10. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Buying an Existing Business Find – Classified Section, Business Broker, Small Business Administration, Chamber of Commerce Advantages – Already has customers, suppliers, and procedures Seller may train new owner Prior records of revenues, expenses and profits Financial arrangements can be easier Disadvantages – Not making profit Poor reputations with customers, suppliers or poor location Capital is required – can’t purchase existing business

11. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Steps to Purchase a Business Objectives about type of business you want to buy. Meet with business brokers Visit during business hours to observe Ask owner for finances for the last 3 years Ask for information in written form – suppliers, pending legal action, copy of lease/mortgage Determine how you would finance business Get expert help to determine a price for business (valuator)

12. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Enter a Family Business Advantages? Disadvantages?

13. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Franchise A legal agreement that give an individual the right to market a company’s products or services in a particular area. Franchisee – the person who purchases a franchise agreement Franchisor – person or company who offers a franchise for purchase UFOC – Uniform Franchise Offering Circular More than 500,000 people in US own franchises

14. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Operating Costs Initial franchise fee – payment in return for the right to run the franchise (few thousand to few hundred thousand) Nonrefundable Start-up costs – renting, purchasing inventory etc. Royalty fees – weekly or monthly payments made by the owner to the seller of franchise (% of income) Advertising fees – TV, Mag., etc. Ex. Marry Maids – 14,000 – 22,000 Franchise Fee, 12-20,000 start-up Costs, 7% Royalty Fee

15. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Business Math You have purchased a car wash franchise. The franchise fee was $25,000. You must return 6% of your earnings in royalty fees. During your first year, you spent $10,000 on equipment, $4,300 on operating costs (water and electricity), and $10,700 on your part-time employee. Your first year total revenues were $120,000. Calculate the total expenditures for the first year. What was your profit? 120,000 x 6% = $7200 25,000 + 10,000 + 4,300 + 10,700 + 7,200 = 57,200 120,000 – 57,200 = 62,800

16. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Advantages Established product or service Franchisors offer management, technical, and other assistance Equipment and supplies can be less expensive A guarantee of consistency attracts customers

17. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Disadvantages Franchises cost lots of money and cut down on profits Owners have less freedom to make decisions Franchisees are dependent of the performance of other franchises in chain The franchisor can terminate the franchise agreement

18. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Myths of Franchising Franchising is the safest way to go into business because franchises never fail. The bigger the franchise the more successful I’ll be. All franchises are the same. The franchiser will solve my business problems for me; after all, that’s why I pay an ongoing royalty fee. Once I open my franchise, I’ll be able to run things the way I want to

19. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Expected Areas of Growth in Franchising continued RESTAURANTS Examples: McDonald’s, Burger King, Wendy’s, Chili’s, The Olive Garden, Howard Johnson’s MOTELS Examples : Motel 6, Holiday Inn CONVENIENCE STORES Examples : Bread Basket, T-Shirts Plus, Health Mart TECHNOLOGY Examples : Radio Shack, Circuit City, Babbage’s, Muzak

20. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Expected Areas of Growth in Franchising (continued) AUTOMOTIVE PARTS, ACCESSORIES, SERVICE Examples : General Tire, Midas International, Precision Tune, Jiffy Lube, Valvoline Instant Oil Change COMBINATION FRANCHISING Examples : KFC/Taco Bell; Exxon and Subway Sandwiches GLOBAL FRANCHISING Examples : KFC (Kentucky Fried Chicken), McDonald’s, Pizza Hut, Pepsi, Chick-fil-A, Mail Boxes Etc. TM 4-13B

21. Irwin/McGraw- Hill © The McGraw-Hill Companies, Inc., 2003 Teaming Up Synergy: Concept that two or more people, working together in a coordinated way can accomplish more than the sum of their independent efforts. Some franchisers currently using the DUAL-BRAND CONCEPT include: Arby's + Sbarro Baskin ‑ Robbins + Dunkin' Donuts Carl’s Jr.. + Long John Silver's Denny's + Baskin ‑ Robbins KFC + Taco Bell Taco Bell + T. J. Cinnamons