Chapter 4 – Selecting a type of

ownership Mrs. Leonard

4.1 Run an Existing Business

Artistic Talents At Work (p.79) Which type of business ownership do you

think you would like? Do your parents have hobbies and/or

careers with which you would like to get involved?

Do you think you would be able to form a partnership with a family member? Why or why not?

Run an Existing BusinessStarting a new business, purchasing an

existing business, and entering a family business are ways to become an entrepreneur

Owners of businesses sell their businesses because: Insufficient sales or profits, Worry about new competition Fear of economic conditions Retirement Dispute between partners Owners desire to do something different

Run an Existing Business Finding out what businesses are for sale

Advertisements in the classified section of the newspaper

Business broker – person who sells businesses for a living

People in industry who might know of businesses for sale

Landlords, Leasing agents, lawyers and bankers, management consultants, the SBA, Chamber of Commerce offices, and bankruptcy announcements

Advantages of Buying an Existing Business1. The existing business already has customers,

suppliers, and procedures Could also have built up goodwill and customer loyalty

2. The seller of a business may train a new owner Experienced employees may be available to help the new

owner learn about the company3. There are prior records of revenues, expenses, and

profits Financial planning will be easier and more reliable than it

would be for a completely new business4. Financial arrangements can be easier

Seller of business may accept an initial partial payment and allow the rest to be paid off in monthly installments

Reduces or eliminates the need for bank financing

Disadvantages of Buying an Existing Business1. Many businesses are for sale because they

are not making a profit Owners frequently try to sell businesses that are

not financially viable2. Serious problems may be inherited

Businesses can have poor reputations with customers, have trouble with suppliers, or be poorly located

3. Capital is required Many entrepreneurs just do not have the money

to purchase an existing business – starting a small business of their own might be their only option

Steps to Purchase a Business1. Write specific objectives about the kind of business

you want to buy, and identify businesses for sale that meet your objectives

2. Meet with business sellers or brokers to investigate specific opportunities

Ask about history of business, reason for sale, financial performance, and price the owner is asking for the business

3. Visit during business hours to observe the company in action

1. Inspect the company to make sure it meets your needs

Steps to Purchase a Business4. Ask the owner to provide you with a complete

financial accounting of operations for at least the past three years

Analyzing these reports will help you see how much profit you will make and the expenses you will be paying out

5. Ask for important information in written form List of assets to be transferred, statement about past or

pending legal action against the business, copy of the business lease or mortgage, and a list of suppliers

Have an account and lawyer help you review the material6. Determine how you would finance the business

Contact lending institutions, and ask the seller if he or she would be willing to finance part or all of the purchase

Steps to Purchase a Business7. Get expert help to determine a price to

offer for the business Valuator – an expert on determining the value

of a business Present the offer in writing to the seller If agreement is met, have a lawyer draw up a

sales contract

Who is interested in purchasing an existing business?

Enter a Family Business The U.S. economy is dominated by family

businesses 90% of all businesses, including a vast majority of

small- and medium-sized companies are owned by families

Example: Ford Motor Company is continually owned largely by people who are related to the company founder

Who is interested in entering or taking over a family business?

Advantages of Family Business Entrepreneurs who work for their family

business enjoy a pride and sense of mission that comes with being part of a family enterprise Enjoy the fact their businesses remain in the

family for at least one more generation Enjoy working with relatives and knowing

efforts are benefiting those they care about

Disadvantages of a Family Business

Senior management positions are often held by family members, regardless of their ability Sometimes means that poor business decisions are made

Difficult to retain good employees who are not members of the family

Family politics often enter into business decision making

Distinction between business and private life is blurred in family owned businesses. As a result business problems end up affecting family life as

well Entrepreneurs who join family businesses must be

prepared to make compromises Cannot make the decisions by themselves or set policies and

procedures as they like Challenge of what to do when there is no family

member to take over the business

Assessment Thinking Critically (p.84)

Questions 1,2 Type the Question & Answer

Save!

4.1 True/False & Multiple Choice worksheet Put in your notebook