SELECT A TYPE OF OWNERSHIP

•Run an existing business

•Own a Franchise

•Choose the Legal form of Your Business

Purchase an Existing Business

Starting your own business from scratch is not the only way to own a business

You can either purchase an existing one or enter a family business

People sell their businesses for many different reasons

Retirement, competition, death or illness, dispute with partners, etc...

There are many different ways to find out about businesses for sale

Business Broker

A person who sells businesses for a living

Other ways:

Advertisements in the classifieds Landlords and leasing agents Lawyers and brokers Management consultants Chamber of Commerce Bankruptcy announcements

Advantages of buying a business

The existing business already has customers, suppliers and procedures, customer loyalty

The seller may want to train the new owner, along with experienced employees

The business already has a history of sales, expenses and profit (makes financial planning easier)

Financial arrangements can be easier (the owner may accept an initial payment and payments after, monthly instead of going to a bank for a loan)

Disadvantages of buying an existing business

Many businesses are for sales because they are not making a profit.

Serious problems may be inherited (poor customer relationships may exist)

Lots of Capital $$$ is required.

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

Meet with business sellers and brokers to investigate specific opportunities

Visit during business hours to see the company in action

Ask the owner to provide you with a complete financial accounting of operations for at least the past 3 years

Steps to purchase a Business

Ask for important information in written form e.g. A list of all assets, any legal action taking place against the business, copy of the existing mortgage, a list of all suppliers.

Have an accountant and a lawyer help you review all the material

Determine how you would pay for (finance) the business

Get expert help to determine a price for the business (an accountant or valuator)

Enter a Family Business

Most small businesses are family run or related

Advantages of Family Business

Pride and sense of mission Enjoy the fact that the business will

remain another generation Enjoy working with relatives (more

comfortable) Love for family is a motivating force that

will push you to work that much harder

Disadvantages of Family Business

Senior positions are often held by family members regardless of their ability

May be difficult to retain good employees who are not family members

Family politics Family-life and work-life become blurred What if there is no family member to take

over the business or family member does not want to?

Existing business Search

Let’s try to find existing businesses that may be on sale right now in Cambridge, Region of Waterloo, Southern Ontario or go further if you wish

Choose one that may be appealing to you and answer the following questions:

1. What is the business2. Where is it located3. What is the owner asking for in $$$$?4. Does the owner have any other requests?

Owning a Franchise

Purchasing a franchise is another route you can take in becoming an Entrepreneur

Franchise Ownership

A 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

the franchise agreement A franchisor is the person or company

that offers a franchise for purchase

Opportunities

Franchising opportunities are found in all sectors of the economy, from automotive to food, to retail to technology

E.g. Best Buy Canadian Tire McDonalds

Operating Costs of a Franchise

Franchise fees Start-up costs Royalty fees Advertising fees (nationwide)

Initial Franchise Fee

The fee the franchise owner pays in return for the right to run the franchise.

It can run from a few thousand $’s to a few hundred thousand $’s

Usually nonrefundable

Start-up Costs

Costs associated with beginning the business

Renting a facility Equipping the outlet Purchasing inventory

Royalty Fees

Weekly or monthly payments to the franchisor

Usually determined by a percentage of the income of the franchise

Advertising Fees

Fees paid to support T.V. ads, magazine ads and other ads that promote the entire franchise corporation

Advantages of a Franchise

You are selling an established product or service

Franchisors offer management, technical and other assistance and supports to the franchisee to be successful

Equipment and supplies can be less expensive

A guarantee of consistency attracts customers

Disadvantages of a Franchise

Franchises can cost a lot of money and cut down profits

Owners of franchises have less freedom to make decisions than other entrepreneurs

Franchisees are dependent on the performance of other franchisees in the chain

The franchisor can terminate the franchise agreement

Evaluating a Franchise

There are many things to consider when purchasing a franchise. You should ask the following questions to evaluate a specific franchise:1. What is the projected demand for the

product or service in the area that I want to locate in?

2. Will I be guaranteed an exclusive territory for the duration of the franchise term or can the franchisor sell additional franchises in the area?

3. What are the costs and royalty fees4. How profitable have other franchises in the area been?5. What do other franchisees think of the franchisor?6. How long has the franchisor been in business?7. How profitable is the franchisor?8. What services does the franchisor provide?9. Will the franchisor help me with marketing, merchandising and inventory and site selection?10. What happens if I want to cancel the franchise agreement?

Franchise Agreements

To make sure that you are not being misinformed by the franchise: Clearly read and study your documents that

the franchisor gives you Be weary of any franchise that does not back

up their financial statements Be weary of high pressure sales tactics Never allow yourself to be pressured into

making a decision too quickly Documents are complicated Always consult a lawyer

Your turn!!

Research a franchise that interests you. Research the franchise, and then evaluate the opportunity using the questions given above.

Google your questions or go directly to the homepage of the franchise to search for answers to your questions

Write a short report (1 – 2 pages)on your findings.

At the end of your report, tell whether you think this franchise is a good opportunity