select a type of ownership

LESSONSLESSONS

ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Chapter 4Chapter 4

SELECT A TYPE OF OWNERSHIP

4.14.1 Run an Existing Business

4.24.2 Own a Franchise or Start a Business

4.34.3 Choose the Legal Form of Your Business


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Lesson 4.1RUN AN EXISTING BUSINESS

Identify the advantages and disadvantages of purchasing an existing business.

Explain the steps involved in buying a business.

Recognize the advantages and disadvantages of joining a family business.

GOALSGOALS


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Purchasing an Existing BusinessOwners may sell their businesses for a

variety of reasonsInsufficient sales or profitsWorry about competitionRetirementDeath or Illness of partnerOwner’s desire to do something different


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Purchasing an Existing BusinessThere are many ways to find out what

businesses are for saleAdvertisements in the classified section of

paperSBA or Chamber of CommerceA business broker

Person who sells businesses for a living


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ADVANTAGES OF BUYING AN EXISTING BUSINESSThe existing business already has

customers, suppliers, and procedures.May have also built up good will and

customer loyalty

The seller of a business may train a new owner.Experienced employees can help train the

new owner


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Advantages of Buying an Existing BusinessThere are prior records of revenues,

expenses, and profits.Financial planning is easier and more

reliable

Financial arrangements can be easier.Seller may accept an initial partial payment

and allow the rest to be paid off in monthly installments


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Slide 7DISADVANTAGES OF BUYING AN EXISTING BUSINESS Many businesses are for sale because they

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

financially profitable Serious problems may be inherited.

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

Capital is required. Many people just do not have the money to buy an

existing business


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STEPS TO PURCHASE A BUSINESS Write specific objectives about the kind of business you want

to buy, and identify businesses for sale that meet your objectives. This will help you find the right business for what you want to

do Meet with business sellers or brokers to investigate specific

opportunities. Ask about the history of the business, the reason it is for sale

and its financial performance Visit during business hours to observe the company in

action. Inspect the facility


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Slide 9

Steps to Purchase a Business Ask the owner to provide you with a complete

financial accounting of operations for at least the past three years.

Ask for important information in written form. Determine how you would finance the business. Get expert help to determine a price to offer for

the business A valuator can help Valuator: an expert on determining the value of a

business


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Slide 10

The Family BusinessThe US Economy is dominated by

family businessesIt is estimated that 90% of all business

are owned by familiesFord Motor Company


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ENTER A FAMILY BUSINESS Advantages of a family business

Enjoy the pride or sense of mission Enjoy working with people you know Efforts are benefiting those they care about

Disadvantages of a family business Senior positions are held by people regardless of

their ability Difficulty to maintain employees outside your

family Business problems end of affecting family life


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Lesson 4.2OWN A FRANCHISE OR START A BUSINESS

Evaluate franchise ownership.

Recognize the advantages and disadvantages of starting a new business.

GOALSGOALS


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FRANCHISE OWNERSHIPA franchise is a legal agreement that

gives an individual the right to market a company’s products or services in a particular area.

A franchisee is the person who purchases a franchise agreement.

A franchisor is the person or company that offers a franchise for purchase.


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Slide 14

Franchise Ownership More than 500,000 people in the US owne

franchises and the number is growing. Franchising opportunities are available in

virtually every field, from motels to pet stores to video outlets

Sources you can find information about franchises include Consumer Guides Books Wall Street Journal Magazines


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OPERATING COSTS OF A FRANCHISE Initial franchise fee

Fee the franchise owner pays in return for the right to run the franchise

Usually non-refundable and a few thousand to a few hundred thousand dollars

Start-up costs Costs associated with beginning a business

Royalty fees Weekly or monthly paymnets made by the owner of the

franchise to the seller of the franchise Usually a percentage of the franchises income

Advertising fees Fees paid to support TV, magazine or other advertising of

the franchise as a whole


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ADVANTAGES OF OWNING A FRANCHISE An entrepreneur is provided with an established

product or service. Can compete with giant companies

Franchisors offer management, technical, and other assistance. Onsite training or classes and tips

Equipment and supplies can be less expensive. Because franchises are part of large chains, they are able to

purchase in huge quantities Discounts passed on to individual franchisee

A guarantee of consistency attracts customers. Customers know quality of franchise


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DISADVANTAGES OF OWNING A FRANCHISE Franchises can cost a lot of money and cut down on profits.

Initial capital to buy franchise is high Often profits you receive as franchisee must be reutrned to

franchisor as royalty fees Owners of franchises have less freedom to make decisions than

other entrepreneurs. Franchisees can only offer certain products and services that have

already been decided by franchisor Franchisees are dependent on the performance of other

franchisees in the chain. Customers opinions and other franchise reputations follow you

around The franchisor can terminate the franchise agreement.

If franchisee fails to pay royalty fees, or meet other agreements, the franchise can be lost


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EVALUATING A FRANCHISE Demand for product or service Exclusive territory Costs Profitability Longevity Services provided by franchisor Loss of independence Cancellation


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STARTING YOUR OWN BUSINESSAdvantages of starting your own

businessDisadvantages of starting your own

business


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Slide 20Lesson 4.3CHOOSE THE LEGAL FORM

OF YOUR BUSINESSEvaluate the different legal

forms for a business.GOALSGOALS


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TYPES OF BUSINESS ARRANGEMENTSSole proprietorshipPartnershipCorporationS corporation


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SOLE PROPRIETORSHIPA business that is owned exclusively by

one person is a sole proprietorship.Sole proprietorship is the most common

form of ownership in the United States.Disadvantages

InvestmentRisk


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PARTNERSHIPShared decisionsShared investmentShared riskDisadvantagesPartnership agreement


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CORPORATIONShare of stockBoard of directorsDividendsDisadvantagesWhy incorporate?


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S CORPORATIONAn S corporation is a corporation

organized under subchapter S of the Internal Revenue Code whose income is taxed as a partnership.


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Slide 26CHARACTERISTICS OF THE LEGAL FORMS OF BUSINESS

Simple to startDecisions made by one personLow initial costLimited liabilityLimited government regulationAbility to raise capitalDouble taxation of profits

Sole Pro

prietorsh

ip

Partners

hip

Corporat

ion

S Corp

oration

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