© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Small Business Entry: Paths to

Full-Time Entrepreneurship

Chapter 6

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Learning Objectives

LO1 Describe five ways that people get into small business management

LO2 Compare the rewards with the pitfalls of starting a small business

LO3 Compare the opportunities with the pitfalls of purchasing an existing business

LO4 Explain four methods for purchasing an existing business

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Learning Objectives

LO5 Compare the advantages with the disadvantages of buying a franchise

LO6 Explain the issues of inheriting a family-owned business

LO7 Describe how hired managers become owners of a small business

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

The Five Paths to Business Ownership

Franchise A legal agreement that allows a business to be

operated using the name and business procedures of another firm.

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The Five Paths to Business Ownership

Start-up A new business that

is started from scratch.

Buyout The purchase of

substantially all of an existing business.

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Starting a New Business

Advantages of start-upsBegin with a clean slateUse the most up-to-date technologiesProvide new, unique products or servicesCan be kept small deliberately to limit the

magnitude of possible losses

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Starting a New Business

Disadvantages of start-upsNo initial name recognitionRequire significant timeVery difficult to financeCannot easily gain revolving creditMay not have experienced managers and

workers

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Increasing the Odds of Start-Up Success

Spin-off A business that is

created by separating part of an operating business into a separate entity.

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Buying an Existing Business

Advantages of purchasing an existing business

Established customersBusiness processes are already in placeOften requires less cash outlay

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Buying an Existing Business

Disadvantages of purchasing an existing business

Finding a successful business for sale that is appropriate for you is difficult

Existing employees may resist changeReputation may be a hindranceFacilities and equipment may be obsolete

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Due Diligence

Due diligence process of

investigating a business to determine its value

Caveat emptor Latin: let the buyer

beware

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Due Diligence

Intangibles Assets, such as

patents or trademarks, and liabilities, such as accounts payable, that have no physical existence.

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Determining the Value of the Business

Net realizable value The amount for

which an asset will sell, less the costs of selling.

Replacement value The cost to acquire

an essentially identical asset.

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Structuring the Deal

Takeover Seizing of control of

a business by purchasing its stock to be able to select the board of directors.

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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Franchising A Business

Trade name franchising agreement that provides to the franchisee only

the rights to use the franchisor's trade name and/or trademarks

Product distribution franchising agreement that provides specific brand name

products which are resold by the franchisee in a specific territory

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