BUSINESS OPTIONSStartup business

Buyout businessFranchising

Family business

REFERENCEJustin G. Longenecker, Carlos W. Moore, J. William Petty, Leslie E. Palich Small Business Management-An Entrepreneurial Emphasis 13th Edition © 2006

Steve Mariotti, Caroline Glackin Entrepreneurship and Small Business Management ©2012

STARTUP BUSINESS

GETTING STARTED!

STARTUP BUSINESS• IDENTIFYING STARTUP IDEAS

According to Amar Bhide:

“Startup products that do not serve clear and important needs cannot expect to be “discovered” by enough customers to make a difference.”

• FUNDAMENTAL REQUIREMENTS WHETHER A BUSINESS IDEA IS A GOOD INVESTMENT

STARTUP BUSINESS (cont.)

TYPES OF STARTUP IDEAS

SOURCES OF STARTUP IDEAS

BUYOUT BUSINESS

BUYING AN EXISTING BUSINESS

BUYOUT BUSINESS1.To reduce uncertainties that must be faced in starting a business.

2.To acquire a business with ongoing operations and established relationships with customers and suppliers

3.To obtain an established business at a price below what it would cost to start a new business

4.To begin a business more quickly that by starting from scratch.

REASONS FOR BUYING EXISTING BUSINESS

SOURCESA sales representative, a manufacturer, or a wholesaler may be offered an opportunity to buy a customer’s businessSuppliersDistributorsBankersRealtorsSpecialized brokers, “matchmakers”

FINDING A BUSINESS TO BUY

INVESTIGATING AND EVALUATING

VALUING THE BUSINESSNUMEROUS TECHNIQUES FOR

VALUING A COMPANY:1.ASSET-BASED VALUATION2.MARKET-COMPARABLE VALUATION3.CASH FLOW-BASED VALUATION

NONQUANTITATIVE FACTORS IN VALUING A BUSINESS

BUYER• You are working to secure the best

possible price.• The price you pay should be no greater than

you determined in advance.

SELLER• Working to recoup as much money as

possible through the sale.

NEGOTIATING AND CLOSING THE DEAL

• When determining the price and terms of the sale, it is essential to clearly establish what is being purchased- ASSET ONLY or THE BUSINESS AS A WHOLE

• Terms of the sale will be a major factor.• All the terms and conditions should be agreed upon.• Understand all legal agreements• Will the previous owner hold a note payable on all or part of the purchase price?• Under what repayment terms?• Is there a noncompete agreement restricting when and where the seller can open the same kind

of business?• Is the seller remaining with the business for specified amount of time to perform particular

duties?

FRANCHISING ALL ABOUT FRANCHISING!

ALL ABOUT FRANCHISINGFRANCHISE- a business that markets a product or service developed by a franchisor.

FRANCHISING- the system of operating a franchise governed by legal agreement between franchisor and franchisee.

FRANCHISOR• A person who develops a franchise or a company that sells franchises and specifies the terms and particulars of the franchise agreement.

FRANCHISEE• The second party to the franchise agreement, the owner of the unit or territory rights.

FRANCHISOR VS FRANCHISEE

2 TYPES OF FRANCHISESPRODUCT AND TRADE-NAME

FRANCHISING• Franchisee usually sells products that are manufactured by the franchisor.

BUSINESS-FORMAT FRANCHISING• Franchisee secures the product and trade-name benefits but also operating, quality assurance, accounting, marketing method, and support of the franchisor.

FACTORS TO CONSIDER BEFORE BECOMING A FRANCHISEE

1.Franchisor success2.Franchisor durability3.Franchisor financial health4.Startup investment5.Financing support6.Purchasing requirements7.Term of agreement8.Competition9.Management fit

POSITIVE ASPECTS OF FRANCHISING

STARTUP ASSISTANCE•Training•Operating manual for the franchise

•Ongoing support and assistance

•Guidelines on audits

POSITIVE ASPECTS OF FRANCHISING(cont.)

DRAWBACKS OF BUYING A FRANCHISE

DRAWBACKS OF BUYING A FRANCHISE (cont.)

STEPS FOR FRANCHISE SELECTION

FAMILY BUSINESS

A UNIQUE INSTITUTION

WHAT IS A FAMILY BUSINESS?

• FAMILY BUSINESS– A company that two or more of the same family own or operate together or in succession.

– A firm is recognized as a family business if it passes from one generation to another.

FAMILY VS BUSINESSFAMILY

• Primary function is the care and nurturing of family members.

• Family’s goals are the fullest possible development of each member.

• Disciplining an employee is much more problematic if he/she is also a family member.

BUSINESS• Concerned with the production

and distribution of goods and/or services.

• Business’s goals are profitability and survival.

• Some choose business over family.

ADVANTAGESFAMILY BUSINESS ADVANTAGE

Strong motivation of family members to see

business succeed.

Developing firm-specific knowledge

among family members.

Focus on the long run. Reduced cost of control

Ability to use family theme promotions

Shared social networks among family members.

Preservation of the firm’s reputation based on maintenance of high

standards.

STAGES IN THE PROCESS OF SUCCESSION

FAMILY ROLESThe man or woman who founded the firm and plans to pass it on to a son or daughter. Some founders achieve a delicate balance between their business and family responsibilities.

Their roles vary depending on their backgrounds and expertise.

In the entrepreneurial family, the natural tendency is tothink in terms of a family business career and to pusha child, either openly or subtly, in that direction.

IMPORTANT NOTES• Family council – An organized group of family members who gather periodically to discuss family- related business issues.

• Family business constitution- a statement of principles intended to guide a family through times of crisis and change.