De ne the nature of the business
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Marcellous Curtis
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Start a new Business •
De ne the nature of the business
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Create preferred type of physical facilities
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Obtain fresh inventory
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Make all initial personnel decisions
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Latest technology & materials available
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Select a competitive environment
Not to start a new business Problems nding the right business
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Assembling the resources; Location, building, equipment, materials, employees
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Lack of established product line
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Production problems; start up
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Lack of established market & distribution
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Risk of failure higher then Buying existing business or Franchise fi
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Buy an existing business Personnel are already working
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Facilities are already available
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A product is already reaching a market
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The location may be desirable
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Relations with banks and trade creditors
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Revenues and pro ts are being generated
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Goodwill already exists fi
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Not to buy existing business Physical facilities may be old or obsolete
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Employees may have poor attitude
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Accounts receivable may be uncollectible
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Location may be bad
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May have poor nancial standing
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Inventory may be obsolete or in poor quality
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Questions to ask before Buying an existing business
Why is it for sale
Are facilities suitable for future operations
Is the business operating e ciently
Financial condition
Is the price fair
Do you have necessary ability
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Steps in Purchasing a Business
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Write speci c objectives about the kind of business you want to buy.
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Meet with business sellers or brokers to identify speci c opportunities.
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Identify businesses for sale that meet the objectives.
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Visit during business hours to observe the business in action.
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Obtain accounting records for the prior three years.
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Get important information in writing.
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reviewed by a lawyer
reviewed by an accountant
Franchise Ownership •
franchise
– a legal agreement that gives an individual the right to market a company’s products or services in a particular area
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franchisee
– the person who purchases a franchise
franchisor
– the company that o
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ers the franchise for purchase
Operating Costs of a Franchise
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initial franchise fee
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startup costs
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the amount the local franchise owner pays in return for the right to run the franchise
the costs associated with running a business
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royalty fees
weekly or monthly payments made by the local owner to the franchise company
advertising fees
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paid to the franchise company to support television, magazine, or other advertising of the franchise as a whole
Investigate the Franchise Opportunity
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The FTC requires franchise sellers to provide detailed disclosure information at least 10 business days before nalizing a purchase.
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The disclosure document should include the following:
contact information for at least ten previous purchaser who live nearest to you
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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.
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Interview current owners.
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All costs and royalty fees should be provided.
shills
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business references who are paid to give favorable reports
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Research the franchisor’s history and profitability.
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Investigate claims about your potential earnings.
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Have the seller provide, in writing, the number and percentage of owners who have done as well as they claim you will.
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Does projected local demand match potential earnings?
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Do not sign up immediately.
Do not fall for a promise of easy money.
Shop around.
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Compare services o ered by similar franchisors.
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Listen carefully to sales presentations.
■ Get the seller’s promises in writing.
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Determine what will happen if you want to cancel the franchise agreement.
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Ask for advice from professionals.
Advantages of Owning a Franchise
An entrepreneur is provided with an established product or service.
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Franchisors o er management, technical, and other assistance.
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Equipment and supplies can be less expensive.
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A guarantee of consistency attracts customers.
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Disadvantages of Owning a Franchise
Franchise fees can be costly and cut down on pro ts.
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Owners of franchises have less freedom to make decisions than other entrepreneurs.
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Franchisees are dependent on the performance of other franchises in the chain.
The franchisor can terminate the franchise agreement.
The End