MGMT 341 Week 4

Newspaper ads

"Business Opportunity" classified ads are another source. Because an ad often will appear in one paper and not another, it may be necessary to check the classified sections of all the papers in the area.

Advantages of buying an existing firm

Most times, the operation is already successful, start-up time is eliminated and a reduced price can be obtained. It is important to do due diligence to ensure the business is right for you.

Six domains of an ecosystem

a conducive culture, enabling policies and leadership, availability of appropriate finance, quality human capital, venture-friendly markets for products, and a range of institutional and infrastructural supports.

Characteristics associated with a franchising relationship are similar in some respects to those of principal/agent, employer/employee, and employer/independent contractor relationships, yet a franchising relationship does not truly fit into any of these traditional classifications.

True

The seller never should be relied on as the sole information source.

True

Today, more than a third of all retail sales and an increasing part of the gross domestic product are generated by private franchises.

True

Key questions to ask when purchasing an existing business

Why is the business being sold? What is the physical condition of the business? What is the condition of the inventory? What is the state of the company's other assets? How many of the employees will remain? What competition does the business face? What is the firm's financial pictur

franchisee

a purchaser of a franchise) generally is legally independent but economically dependent on the integrated business system of the franchisor (the seller of the franchise)

Franchise Rule

a rule that prescribes that the franchisor must disclose certain information to prospective franchisees enacted by the FTC

new-old approach

a start up approach to business in which the concept provides a new angle to something that already exists in the marketplace

profit trend

a venture's ability to generate a profit over a sustained period

Online sources

There are many business marketplaces online; so many buyers begin their searches on one of these sites. The buyer can look at a variety of available listings in their chosen industry to find the most viable opportunities and ask for additional information on any listing, which will alert the seller of the buyer's potential interest.

new venture

an be a new idea or product or the new-old approach by "piggybacking" on an existing idea or expanding what the competition is doing. most effective way to start a new business

business incubator

an entity that helps new ventures to develop by providing services such as management training and office space. Entrepreneurs enjoy a collaborative work environment with invaluable mentoring and networking opportunities, funding support, and shared equip-ment. Most top incubators tend to be industry-specific.

franchise

an existing chain that already understands the market and the customer base. Franchises have existing business processes and products that can be implemented at many locations.

franchise

any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services.

Business accelerators

are organizations that offer a range of support services and funding opportunities for new ventures. Typically, entrepreneurs are enrolled in months-long programs that offer mentorship, office space, and other resources. One of the most important elements of accelerators is their ability to offer access to capital and investment in return for start-up equity. New ventures will spend on average about four months in the program and then must "graduate," so it is very intensive for the entrepreneur.

Evaluation of the selected venture

business environment, profits, sales and operating ratios, business assets such as the tangible (physical ) and intangible(reputation)

Equity financing

can be in the form of commercial banks, trade credit, accounts receivable financing, factoring and finance companies, and various forms of equity instruments.

entrepreneurial ecosystem

efers to the social and economic environment affecting the local and regional entrepreneurship. an agglomeration of inter-connected individuals, entities, and regulatory bodies in a given geographic area.

risk versus reward analysis

examine overall gains and losses. points out the importance of getting an adequate return on the amount of money risked.

Disadvantages of franchising

franchise fees, control exercised by the franchisor, unfulfilled promises by some franchisors

legal restraint of trade or non-compete agreement

have an attorney write into the contract an agreement that the previous owner will refrain from conducting the same business within a reasonable distance for a period of at least five years.

e new-new approach

indicates the importance of people's awareness of their daily lives (work and free time) for developing new business ideas.

elements to be recognized when negotiating the final deal of a purchase of an existing business venture

information, time, pressure and alternatives

Debt financing

involves borrowing money from a lender with the understanding the borrower must pay the money back with interest.

the worst thing an entrepreneur can do

is adopt an all-or-nothing strategy. A contingency or backup plan should be available flexibility is key

Information

may be the most critical element during negotiations. The performance of the company, the nature of its competition, the condition of the market, and clear answers to all of the key questions presented earlier are all vital components in the determination of the business's real potential.

Public stock and private placements

must adhere to the Securities and Exchange Commission rules. Each of these methods require the entrepreneur to give up a significant amount of control and ownership.

traditional ways to start a business

new venture, franchise, or buy an existing business

key questions to ask when buying an ongoing venture.

why is the business being sold (site location problems, what the owner is planning on doing once the business is sold, etc.) What is the current physical condition of the business? What is the condition of the inventory? What is the state of the company's other assets? how many employees will remain? what's type of competition does the business face? what does the firm's financial picture look like

Additional considerations that a person should keep in mind when purchasing a business include the following:

1. Request that the seller retain a minority interest in the business or establish the final pur-chase price dependent on the performance of the business over a three-to-five-year span, to keep the seller concerned about the immediate future performance of the business. 2. Buyers should be wary of any promises made without written corroboration. 3. Spending time with the seller's books, reconstructing financial statements to determine how much cash is actually available, is an absolute. 4. And, it goes without saying, investigations should be thorough and wide-ranging, encompassing interviews not only with the owner but with vendors, competitors, customers, and employees as well.

things a franchisee needs to do

1. Make a financial investment in the operation. 2. Obtain and maintain a standardized inventory and/or equipment package usually pur-chased from the franchisor. 3. Maintain a specified quality of performance. 4. Follow a franchise fee as well as a percentage of the gross revenues. 5. Engage in a continuing business relationship.

sources entrepreneurs should use when researching available opportunities to buy a business.

Business brokers, newspaper ads, trade sources, professional sources, online sources

3. The person who purchases the franchise is usually required to do all of the following except invest money in the operation. maintain a specified quality of performance. pay a fee. design a logo for the unit.

D

5. When starting a business, which of the following sources of financing is least likely to be used? trade credit factors leasing companies insurance companies

D

Disadvantages of buying an existing business

Examples include buying a company whose success has been due to the personality and charisma of the owner or manager, buying a company when the market for its product has peaked, and paying too much for a company.

After the prospective entrepreneur has gathered all of the necessary information, it is up to the _____ to make the final decision on the matter. entrepreneur entrepreneur and his or her financial advisor board of directors legal advisors

Financial advisors, board of directors and legal advisors can assist in making the final decision.

upside gain and downside loss.

This term refers to the profits the business can make and the losses it can suffer.

An entrepreneur's background, skills, interests, and experience are all impor-tant factors in selecting the type of business to buy. In addition, personal preferences for location and size of a business should guide the selection process.

True

Venture capitalists (VC)

Fund many start-up firms today

Trade sources

Suppliers, distributors, manufacturers, trade publications, trade associations, and trade schools may have information about businesses for sale.

Advantages of Franchising

Training and guidance, brand-name appeal, proven track record, financial assistance

the franchisor provides the following types of benefits and assistance:

1. The company name. For example, if someone bought a Burger King franchise, this would provide the business with drawing power. A well-known name, such as Burger King, ensures higher sales than an unknown name, such as Ralph's Big Burgers. 2. Identifying symbols, logos, designs, and facilities. For example, all McDonald's units have the same identifying golden arches on the premises. Likewise, the facilities are similar inside. 3. Professional management training for each independent unit's staff. 4. Sale of specific merchandise necessary for the unit's operation at wholesale prices. Usually provided is all of the equipment to run the operation and the food or materials needed for the final product. 5. Financial assistance, if needed, to help the unit in any way possible. 6. Continuing aid and guidance to ensure that everything is done in accordance with the contract.

2. An additional consideration to keep in mind when negotiating to purchase an existing business includes requesting that the seller retain _____ in the firm. a minority interest a majority interest either a minority or a majority interest minority dependence

A

4. Which of the following is a source of capital for entrepreneurs? equity debit auto leasing mortgages

A

Difference between incubators and accelerators

Incubators operate as non-profits, so as mentioned above, they do not require equity in a company in return for access to their resources in the way that accelerators do. As a result, new ventures generally receive far less access to capital by joining an incubator than they could expect to receive from an accelerator. The number of accelerators operating across the globe has expanded exponentially. From only a handful in the early 2000s, there are well over 600 in existence today. The popularity has grown because accelerators have stringent review policies for the new ventures that apply, allowing investors to simply invest in accelerators that take on shares in the new ventures themselves. The only potential drawback of joining a business accelerator is that the entrepreneur usually gives up equity in the venture

Stages of presenting a business plan to a venture capitalist (vc)

Initial screening, business plan evaluation, oral presentation, and final evaluation.

Business assets that should be examined when purchasing an existing business

Inventory (age, quality, salability, condition) • Furniture, equipment, fixtures (value, condition, leased or owned) • Accounts receivable (age of outstanding debts, past collection periods, credit standing of customers) • Trademarks, patents, copyrights, business name (value, role in the business's success, degree of competitive edge) • Goodwill (reputation, established clientele, trusted name)

company's profitability

Is the business doing anything wrong that can be spotted from the statements? If so, can the prospective buyer eliminate these problems?

classifying the newness of an innovation

Linking the different dimensions of innovation newness—technology newness and/or market newness—with the level of innovation newness—incremental versus radical innovations

Crowdfunding

Money is raised from a large number of people using the Internet. Crowdfunding can engage investors and provide quick feedback. However, if the crowd is displeased, it could hurt the reputation and future funding

Business brokers.

Professionals specializing in business opportunities often can provide leads and assistance in finding a venture for sale. However, the buyer should evaluate the broker's reputation, services, and contacts. The entrepreneur also should remember that the broker usually represents—and gets a commission on the sale from—the seller

Professional sources

Professionals such as management consultants, attorneys, and accoun-tants often know of businesses available for purchase.