Small business management
Three sources of information for potential franchisee
•Third-party coverage helps in evaluating the credibility of information provided directly by the franchisor •The franchisor as a source of information •Existing and previous franchisees as a source of information
Intangible assets are:
•Those assets that cannot be touched or grasped such as a name, Goodwill, copyrights, and trademarks. •They do not appear on the balance sheet
What is a family business?
It is a business kept with him in the family and two are more family members are involved
When valuing a business you should take into account two important sets of factors what are they?
Non-quantitive factors and quantitive factors
company-owned store
One or more outlets that are not franchised, on by most franchisors
patent
(n.) exclusive rights over an invention; copyright; (v.) to arrange or obtain such rights; (adj.) plain, open to view; copyrighted
Franchise costs 4
-initial franchise fee -investment costs -royalty payments -advertising costs
The franchise opportunities handbook, published annually by the US Department of commerce, describes more than ___________company is that offer franchises
1,400
Franchising was derived from
A French word meaning "freedom" or "Exemption from duties"
In a franchise
A business relationship in which an owner (franchiser) licenses others to operate outlets using business concepts, property, trademarks and trade names on by the franchisor
Earnings Value Approach
A business valuation approach that centers on estimating the amount of potential income that may be produced by the business in the next year.
Management
A good fit should exist between the entrepreneur and the opportunity
Franchising
A marketing system revolving around a two-party legal agreement, we're by the franchisee conducts business according to time specified by the franchisor
multiple-unit ownership
A situation In which a franchisee owns more than one franchise from the same company
Research has shown that these forces are more often generated from personal expertise, not from external sources
Buyers, suppliers, substitute products, competitive rivalry, and new entrance all represent forces within an industry
Market value approach
An approach used in business valuation which determines value based upon previous sales of similar businesses.
Business/consulting firms
Assist with franchise evaluation and offer development services
What are cash reserves?
Can be best described as rainy day money.
Three shortcomings of franchising include
Cost, restrictions on operations, loss of independence
The buyer of an existing business does not typically acquire its personnel, inventories, physical facilities, establish banking connections, and ongoing relationships with trade suppliers. True or false?
False, the buyer of an existing business typically requires it's personal inventories etc.
One franchise consultant group is ________ which offers seminars to guide franchise choice
FranCorp
Where does capital come from?
It can come from investors, lines of credit from Banks, or from cash reserves.
Industry Associations
Groups such as the international franchise association sponsored helpful workshops, seminars, Trader Shows etc.
area developers
Individuals or firms that obtain the legal right to open several franchised outlets in a given area
Goodwill
Intangible asset that enables a business to earn a profit in excess of the normal rate of profit earned by other business of the same kind
Type B Ideas
Is a technically new process that provides the basis for a new product or service ideas
Cultural governance patterns
Paper board, rubberstamp board, advisory board, overseer board
Cultural business patterns
Paternalistic, laissez-fair, participative, professional
Cultural family patterns
Patriarchal, collaborative, conflicted
Type C ideas
Perform an old function but in a new and improved way
FTC 436 coverage
Pertains to business-format franchises, product franchising, and vending machine or display rack business ventures
organizational culture
Practices distinguishing a given firm, such as beliefs about working beyond the closing hour or slowing down as closing time approaches
FTC 436 purpose
Provide information to assess risk and benefits
FTC 436 remedies
Response to violations
FTC 436 disclosure option
Rule 436 or UFOC guidelines
Federal and state agencies
Such as FTC, provide information on franchise opportunities and enforcing it franchising laws/regulations
Mature Succession Stage
The child becomes the head of the business in facts as well as in title
Pre-Business Stage
The child experience is going to the business with a parent and playing there
Advanced Functional Stage
The child fills a supervisory position
Introductory stage
The child is introduced to keep people in the business
Introductory functional stage
The child put some part-time work at the business do you are jobs that require minimal education
Functional stage
The child works full-time at the business and works in various positions to learn what the company does and how it functions
Replacement value approach
The fair market price to purchase similar products in similar condition.
piggyback franchising
The operation of a retail franchise within the physical facilities of a host store
Economics
The opportunity or idea must be financially rewarding
competitive advantage
The opportunity or idea needs to offer benefits of sustainability
Franchisor
The party and a franchise contract specifies the methods to be followed by the franchisee
Franchise
The privileges in a franchise agreement
Market factors
There should be a clearly defined need and the right timing to meet the need
No fatal flaw
This is some thing that could render the business less than viable that is in parrot to the idea or opportunity
A firm that is able to create and sustain product and/or service differentiation will most likely be a successful performer in the market place. Small firms are pursuing a focus strategy, if they adapt their efforts to concentrating on a specific public niche within the market true or false?
True
A franchisee has to share profits with the franchisor, true or false?
True
Acquisition of ongoing operations and relationships. And ongoing operation has a track record that has been tried and true and relationships do not have to be built from scratch true or false
True
An entrepreneur who starts his or her own business, rather than buying an existing business, avoid the undesirable presidents, policies, procedures, and legal commitments of the existing firm. True or false?
True
An existing business offers a quick start, no delay in getting going, true or false?
True
Before you buy a business you should investigate and evaluate it, true or false?
True
Conflicts may exist regarding what is good for the business versus what is good for the family. Various roles of individuals can lead to strange relationships. This may occur for example when the supervisor is a parent and boss. True or false?
True
Even if a family member contributes to the success of a family business, it's just not mean that here she has the ability to serve the firm and I keep position. True or false?
True
If an existing business has a bargain price that should always raise a red flag, always allow room for caution. True or false?
True
Magazines and other periodicals are sources of good start if ideas true or false
True
Someone looking to buy a business should examine the financial data value of the business, and look at non-quantitive factors that affect value to the business, in addition to finding out why the businesses for sale in the first place. True or false?
True
Start ups that are launched by first identifying what a market place needs are more likely to be successful especially when the business is related to consumer goods and services True or false
True
The UFOC has in recent years been the excepted format for satisfying franchise disclosure requirement, true or false?
True
The UFOC should be reviewed by a franchise attorney and accountant. The money and time spent on professional assistance, and research (such as phone calls to current owners) could save you from a bad investment decision. True or False?
True
The father or mother's responsibility involves preserving the business and avoiding excessive risk, doing what they know will work, relying on past experience, and respecting traditional methods of operation. True or false?
True
The founders imprint can I have a Darkside to you as the founders ideas tend to dominate a families culture out of respect and heritage for the family. True or false?
True
The franchisee enjoys the rights to use the franchisors nationally advertised trademark or brand name and it's tested methods of marketing and management, true or false?
True
The purpose of determining the value of a business is to provide a benchmark for use in negotiating the purchase price of the business, true or false?
True
The sons or daughters responsibility involves recognizing that today's world is different, and that growth and expansion are important. They need to realize that modern methods can help, and the planning and analyzing our keys to success. True or false?
True
There must be open communication about career opportunities for non-family members. It is also difficult for non-family employees to remain neutral during family difficulties. True or false?
True
When a parent retires completely insurance the firm over to his son or daughter the firm remains a family business because it passed from one generation to another, true or false?
True
When negotiating and closing the deal for buying a business it is important to know the limitations of the buyers or sellers and pay particular attention to the terms of the sale. True or false?
True
UFOC
Uniform Franchise Offering Circular
Culture is:
Unwritten, customary ways of doing things or shared beliefs
The selling price
We determine a valuation of those tangible and intangible assets
Earnings Valuation Approach
a business valuation approach which centers on estimating the amount of potential income that may be produced by the business in the next year.
Trademark
a symbol, word, or words legally registered or established by use as representing a company or product for a specific period of time
mismanagement
careless, inefficient planning; running business incompetently
two types of assets
tangible and intangible
Human Resource Planning
ensuring that the organization has the right number and kinds of capable people in the right places and at the right times
Master licensee
firm or individual acting as a sales agent with the responsibility for finding new franchisees within a specified territory.
What is capital?
money or wealth used to invest in business or enterprise
personnel
staff; The most expensive cost item any firm will have, have sufficient resources are unavailable after the purchase or if employees do not stay on for one reason or another, the new owner may be facing his first crisis of ownership.
Type A Ideas
startup ideas centered around providing customers with an existing product or service not available in their market
franchise agreement
the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
Copyright
the exclusive legal right, given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same.
Franchise Contract
the legal agreement between franchisor and franchisee
Product and trade name franchising
• a franchise agreement granting the right to use a widely recognized product or name •Coca-Cola is an example
Uniform Franchise Offering Circular (UFOC)
• a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees •Must be presented at least 10 days prior to the signing of the franchise agreement •Regardless of industry, size or any other factor, the UFOC follows the same format, which contains 23 categories
Prior job experience accounted for the What percentage of new product ideas?
•45% which is the largest percentage
Sibling Cooperation, Sibling Rivalry
•A family business involving two of my children may experience either sibling cooperation or rivalry •Issues occasionally create disagreement between siblings in the family business •Potential disagreements must be discussed and work through
Family retreats
•Serve as forum for discussions •They open lines of communication •They should be non-threatening •Occasionally outside facilitators he is just keep discussions positive
FTC rule 436
•A franchise or business opportunity seller must give you a detailed disclosure document at least 10 business days before you pay any money or legally commit yourself to a purchase •You can use these disclosures to compare a particular business with others who may be considering or simply for information •Disclosure requirements and prohibit Titian's concerning franchising in business opportunity ventures provide for minimum disclosure standards
What are the two general avenues of deliberate search?
•A survey of personal capabilities •A survey of needs in the marketplace
How should you examine the financial data of the existing business you want to buy?
•An independent audit to reveal the accuracy of financial statements •There should also be a review of financial statements and tax returns for the past five years
Human resources elements to consider
•Are there sufficient personnel available to carry-on after the purchase? •Can they be afforded after the purchase?
Tangible assets are:
•Assets that can be praised by value, seen or touched as inventory, buildings, cars, and equipment. •They appear on a balance sheet
Rule 436 breakdown: 6
•Basic requirements •Disclosure option •Coverage •No filing •Remedies •Purpose
Tax burdens As an external problem
•Business taxes of all kinds I love you by local, state, and federal government. Sales tax, corporate use tax, commercial real estate tax and the list goes on. •Failure to pay and keep current with a business tax burden will result in property being seized, forced foreclosures, and garnishment of income. •Of all expense liabilities when it comes to tax liabilities, the government always has a way of getting its money.
Consumerism as an external problem
•Businesses are constantly challenged by various tastes, needs, and wants of the consumer. •If failure of a business or industry to recognize the ever changing desires of the consumer will result in a business that serves no one. •A business that serves no one makes no money and will not be in business for long
Capital shortages as an external problem
•Businesses need to have access to capital for inventories, personnel, plant, and equipment. Without sufficient access to capital business struggle to survive, some get by and others fail.
How do we pay for a business, what are the terms of sale?
•Cash •Owner or self financing is taking funds from savings or other businesses to finance the purchase • third-party or outside financing can be found in companies such as mortgage companies, banks, and commercial lenders
Non-quantitive factors in valuing a business to consider
•Competition •Market •Future community development •Legal commitments •Union contracts •Buildings •Product prices
Cultural patterns of a family firm
•Cultural business patterns •Cultural family patterns •Cultural governance patterns
What are the questions that need to be addressed when addressing HR- human resources
•Do we have qualified employees? •Do we have enough employees are too many? •How do we compensate them? •How do we instill loyalty? •How do we motivate employees?
Family business constitutions
•Entails a statement of principles intended to guide the family Firm •It is a living document and subject to change
Advantages of a Family Business
•Family often stays when things get tough •can stress values of quality and concern for people as matters •Family ownership can be used as a promotional tool as well such as "family serving families" Or "family owned operation"
Existing and previous franchisees as a source of information
•Finding global franchising opportunities •There is a great opportunity for small firms in the US to franchise in other countries and this opportunity continues to grow as Geopolitical developments open up more markets in abroad •Although the appeal of foreign markets as a stencil, the task of franchising there is not easy •Franchise disclosure requirements
Additional beneficial features in the vantages of family involvement
•Firm specific •Shared networks •He focus on the long run •Preservation of the Firms reputation •Reduced cost of control
Franchise training
•Franchise or provides training to an experienced entrepreneurs •Initial training is ordinarily supplemented with subsequent training and guidance
Franchise Operating benefits
•Franchising offers both a proven line of business and product or service identification •Offers the vantage of using the franchisors trademark or brand-name •Franchisors have developed and tested their methods of marketing and management
Franchise financial assistance
•Franchising organizations often extend a helping hand financially •Association with a well-established franchise or may improve a new franchisees credit standing with a bank or other lender •The SBA introduce the franchise registry to facilitate lending
Mom or dad, the founder
•Have balancing rules in the family in the business •They must be sensitive to the pitfalls in business and parental relationships with offspring •They have concerns about passing the family business along to the generation
FTC 436 basic requirements
•Important information at least 10 days before investment •Under the FTC rule, the seller must wait at least 10 business days after giving you the required documents before excepting your money or signature on an agreement
Franchisor or drawbacks
•Increase in required operating support, accounting and legal services increase when an independent business expands by becoming a franchisor, the more franchises the more support is needed. •Only part of the profits from the franchise operation belongs to the franchisor
Three franchise facilitators that assist entrepreneurs with franchises:
•Industry associations •Federal and state agencies •Business consulting firms
The typical reasons for developing a start up rather than pursuing other alternatives such as buying an existing firm or acquiring a franchise are:
•Invention of the new product or service •Freedom to select the ideal location, employees etc. •Avoidance of undesirable presidents or commitments •Challenges succeeding (or falling) on your own.
What competition exist in the area?
•Is market saturated with this? •Are these businesses surviving? What makes these businesses different from each other? •Is there enough business to go around? •A survey of the local business area should answer these questions. •If the market is saturated there may not be room for additional business of the same nature. If the existing businesses are barely surviving, a similar business may fall to the same fate. •If several businesses of the same type exist in an area knowing what makes them different from each other will perhaps offer insight into why they prosper.
Human resource planning as an external problem
•Is there a sufficient workforce available and are they properly trained? •If they are not trained, can they be trained? •How much will this training cost? •Is it less expensive to hire someone trained or hire someone and train them yourself?
Culture and leadership succession
•It can be difficult to break with established patterns •Leadership change can facilitate a change in culture •The goal is to retain the good aspects of the culture discard the anachronistic and inefficient • Clash between tradition and next generation thinking is always possible
The UFOC provides basic information about the franchise offering and the franchisor
•Litigation and bankruptcy history •Investment requirements •Condition that would affect renewal •Termination •Sale of the franchise
lack of cash flow
•Main reason start-ups fail, even if they have great business plans. •If businesses do not maintain this it will run out of money to pay his bills • lack of cash flow negatively impacts business examples include not being able to pay salaries not being able to reduce their products and services
And evaluating investment opportunities the following criteria should be considered in determining if an idea is a good investment:
•Market factors •Competitive advantage •Economics •Management •No fatal flaw
Sources for buying and selling business opportunities
•Matchmakers •Trade journals
•What are matchmakers when it comes to finding a business to buy?
•Matchmakers for business which put buyers and sellers together
Examples of internal problems
•Mismanagement •Lack of cash flow •HR-human resource management
The disclosure document for FTC rule 436 includes: (6)
•Names, addresses and telephone numbers of at least 10 previous purchasers who lives closest to you •A fully audited financial statement of the seller •Any litigation and/or bankruptcy if the franchisor may be involved with •Background and experience of the business' key executives •Cost of starting and maintaining the business •Their responsibilities you and the seller will have to each other once you've invested in the opportunity
Vertical Integration
•Occurs when a company expense control over a specific industries entire supply chain. •Can we go forward and purchase the seller/distributor or it goes backwards and purchases the wrong material supplier. •It provides a greater level of control over the entire production process and can, therefore, result in lower cost efficiency
Reasons for selling an existing business will often include:
•Old age or illness •Desire to relocate in a different section of the country •Decision to except a position with another company •Unprofitability of the business •Discontinuance of an exclusive sales franchise •Maturation of the industry and lack of growth potential
What are the basic four categories a new idea can come from?
•Personal experience •Hobbies •Accidental discovery •Deliberate search
7 Stages in the process of succession:
•Pre-business stage •Introductory stage •Introductory functional stage •Functional stage •Advanced functional stage •Early succession stage •Mature succession stage
Transferring ownership from one generation to the next and careful planning I need to reach the following:
•Preserving a sound business entity •Assuring equity among heirs •Minimizing Taxes
Benefits of buying an existing business
•Reduction of uncertainties since an existing business has a demonstrated performance and performance record •Acquisitions of ongoing operations in relationships have an established track record. Therefore relationships do not have to be built from scratch •Provides a quick start as there is no delay in getting started
Government regulations as an external problem
•Regulations are imposed by various government agencies •Various industries have additional rules and regulations specifically inherent to the industry. •In the funeral industry various states impose rules and regulations usually under the jurisdiction of the states health department. •The federal trade commission's "funeral rule" must be adhered to buy every provider a funeral goods and services in the US
Three ways of determining the tangible assets
•Replacement value approach •Earnings value approach •Market value approach
Consider Quantitive factors, (approaches) in valuing a business such as:
•Replacement value approach is the fair market price to purchase similar products in similar condition •Earnings valuation approach is a business valuation approach which centers on estimating the amount of potential income that may be produced by the business in the next year •Market value approach is an approach used in business valuation which determines value based upon previous sales of similar businesses
Franchise Restrictions on business operations 5
•Restricting sales territories •Requiring site approval for the retail outlet and imposing •Requirements regarding outlet appearance •Restricting goods and services offered for sale •Restricting advertising and hours operation
What are some examples of the degree and type of involvement that family members have an a family business?
•Several family members work in the business •Ownership has passed you a second or third generation •Children are being groomed for leadership •Consequently, family values and considerations enter into business decisions and operations •In some large corporations the founding family is still involved in operations such as Ford, Levi Strauss, Walmart
Family Councils
•Similar to board meetings in cooperations and volunteer organizations •They are useful to developing harmony with in the family
Third-party coverage while investigating the potential franchise
•State and federal governments are valuable sources of franchising information •Several sources of franchising information are available, including the franchise opportunities handbook, and the franchise opportunities guide •Entrepreneur Inc., success and the Wall Street Journal are only a few of the publications that offer franchisor ratings •Franchise consultants are available to assist individuals, they are not necessarily attorneys, an experienced franchise attorney should evaluate all legal documents
Horizontal and vertical integration
•Tactics that are used by businesses to expand their operations to gain better control, market share, economies of scale, etc. •A company may decide to acquire company is in the same industry producing/and providing the same product/service require companies that become part of the entire production process
Factors that increase the chances of a successful start up:
•Team effort amongst employees and management •Using the founders related business experience and perhaps prior start up experience •Being in service or manufacturing industries •Having the financial resources available •Having the financial resources available •Sharing ownership among founders •Not being limited to local markets
Sons and daughters as founders
•The child's attitude •Child's right to choose a career
Early succession stage
•The child's name is president of general manager of the business •The reins of a parent may delay "mature" succession •The attitudes of the parents will either help or hinders at this stage •It may be hard to be let go fart fans
The family is primary goal in a family owned business is?
•The development of members as well as equality of reward opportunities for each member •members of the family are drawn to the business because the family ties and they tend to stick with the business through thick
Consumerism
•The emphasis placed on providing to customers the products and services that are safe, reliable, and honestly advertised. •It is also a social movement that seeks to strengthen the rights of the consumers relative to the sellers •This is an external problem
Franchise loss of independence
•The franchisee does surrender a certain amount of independence in signing a franchise agreement •The franchise or usually imposes controls to ensure success, but these are not always best for the local operator •Entrepreneurs can lose franchise rights if they fail to uphold the contract
What are the 23 categories of the UFOC
•The franchisor and any predecessors •Identity and business experience of persons associated with franchisor •Litigation history •Bankruptcy •Listing of the initial franchise fee and other initial payments •Other fees and expenses •Statement of franchisee's initial investment •Obligations of franchisee to purchase or lease from designated sources •Obligations a franchisee to purchase or lease in accordance with specifications or from authorized suppliers •Financing arrangements •Obligations of the franchisor; other supervision, assistance or services •Exclusive/designated area of territory •Trademarks, service marks, trade names, local types and commercial symbols •Patents and copyrights •Obligations of the franchisee to participate in the actual operation of the franchise business •Restrictions on goods and services offered by franchisee •Renewal, termination, refreshes, modification and assignment of the franchise agreement and related information •Arrangements with public figures •Actual, average, projected or forecasted franchise sales, profits are earnings •Information regarding franchises of the franchisor •Financial statements •Contracts •Acknowledgment of receipt by respective franchisee
mismanagement
•The lack of expertise in business, or in a particular job position, as a risk with which every business must deal. •Without the proper training or experience the more demanding the position or business will be •Businesses have begun to realize that continuing education other training methods for their workers result in better educated and informed employees •The world is constantly changing and businesses need to keep up with this change. •Having employees keep up with change makes for a better business
•Franchise disclosure requirements
•The offer and sale of franchises are regulated by state and federal laws •The federal trade commission's franchise and business opportunity rule requires franchise and business opportunities sellers to give you specific information to help you make an informed decision
Franchisee
•The party in a franchise contract was granted selling him other privileges his power is limited by the franchising organization. •The franchisee is seldom required to pay the complete cost of establishing the business
HR-human resource management
•The process of acquiring, training, developing, motivating and appraising a sufficient quantity of qualified employees to perform necessary activities. •In addition this type of management requires developing activities and an organizational climate conducive to maximum efficiency and worker satisfaction.
Financial statements can miss lead a potential purchaser trying to develop an accurate business valuation what are ways to avoid this?
•The statements should be adjusted by a potential buyer so that they reflect realistic values such as property that has recently appreciated in value, and receivables that are actually worth less than their stated value
Husband-wife teams
•There are benefits of a couple being in business •The primary benefit to this is togetherness •Problems can also occur such as disagreements in deciding who will be the boss
The entrepreneur spouse
•To operate effectively if the leader of a family firm let's concentrate on dealing with both family members and in-laws in the business •The spouse of an entrepreneur is considered a key person and should be a good listener •The spouse usually is the one to monitor the family concerns
Types of start up ideas
•Type a ideas •Type B ideas •Type C ideas
Horizontal Integration
•When company acquires or merges with another company within the same industry that sells similar product or provides a similar service. •It is aimed at acquiring more marketshare, eliminating competition and achieving economies of scale. • A type of monopoly
When considering buying a business versus starting a new one there are a lot of factors to consider what are some of the questions you should ask yourself?
•Why is the business being sold in the first place? •What potential profits can be realized after the business is purchased? •What assets does the business have? •What competition exists in the area?
In-laws In and Out of the Business
•it is necessary to be fair in evaluating him promoting relatives in the firm •Regard must also be shown to those on the sidelines and may also be important stakeholders
The franchisor as a source of information
•recognize the primary purpose of the source and that is to promote the franchise •Recognize that the financial data provided by the franchise or two potential franchisees are only estimates •The franchisors suppliers are not a source to recommend help to a potential franchisee investigating a franchising opportunity
business format franchising
•the franchisee obtains an entire marketing system and ongoing guidance from the franchisor. •Burger King is an example