Entrepreneurship theory process practice 8e by kuratko 8e ch 06

To present the factors involved in creating a new venture 3.. To outline ten key questions to ask when buying an ongoing venture 5.. To present the UFOC Uniform Franchise Offering Circul

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PowerPoint Presentation by Charlie Cook

The University of West Alabama

Part II

Initiating Entrepreneurial Ventures

Pathways to Entrepreneurial Ventures

Chapter Objectives

1. To describe the major pathways and

structures for entrepreneurial ventures

2. To present the factors involved in creating a

new venture

3. To identify and discuss the elements

involved in acquiring an established venture

4. To outline ten key questions to ask when

buying an ongoing venture

5. To define a franchise and outline its

structure

Chapter Objectives (cont’d)

6. To examine the benefits and drawbacks of

franchising

7. To present the UFOC (Uniform Franchise

Offering Circular) as a key item in franchises

The Pathways to New Ventures

for Entrepreneurs

Acquiring an Existing Venture

Acquiring an Existing Venture

Creating the New Venture

Creating the New Venture

Obtaining a Franchise

Obtaining a Franchise

Pathways to New

Ventures

Pathways to New

Ventures

Creating New Ventures

Approaches to Creating a New

Venture

Approaches to Creating a New

Yoga Niche gyms Children Nonmedical Pre-assisted living Assisted living transition services

Niche Consumables

Wine Chocolate Burgers Coffee houses Exotic salads

Home Automation and Media Storage

Lighting control Security systems Energy management Comfort management Entertainment systems Networked kitchen appliances

Emerging Internet Opportunities Emerging Technology Opportunities

Matchmaking Virtual HR Online Staffing

Nanotechnology Wireless Technology

Source: Steve Cooper, Amanda C Kooser, Kristin Ohlson, Karen E Spaeder, Nichole

L Torres, and Sara Wilson, “2007 Hot List,” Entrepreneur (December 2006): 80–93.

6.1 Sources of New Business Ideas Among Men and Women

Source: William J Dennis, A Small Business Primer (Washington, DC: National

Federation of Independent Business, 1993) 27 Reprinted with permission.

Examination of the Financial Picture

• Upside gain and downside loss

expectations

 The profits the business can make and the losses it can suffer

• How much money will the enterprise take in if all goes well?

• How much will it gross if operations run as expected?

• How much will it lose if operations do not work out well?

• Risk vs reward analysis

 Points out the importance of getting an adequate

return on the amount of money risked

6.2 Checklist for Estimating Start-Up Expenses

Source: U.S Small Business Administration, “Management Aids” MA 2.025 (Washington, DC: U.S Government Printing Office.)

Acquisition of a Business Venture

Acquiring a Business Venture

Acquiring a Business Venture

Asking Key Questions

Asking Key Questions

Examination

of Opportunitie

s

Examination

of Opportunitie

s

Evaluation

of the Venture

Evaluation

of the Venture

Personal Preferences

Personal Preferences

Advantages of Acquiring an Ongoing

Venture

Buying an Ongoing Venture

Buying an Ongoing Venture

Purchasing at a Good Price

Purchasing at a Good Price

Reduced Time and Effort

Reduced Time and Effort

Less Fear about

Evaluation of the Selected Venture

Factors Affecting Sale of the Venture

Factors Affecting Sale of the Venture

Assets of the Venture

Assets of the Venture

Profits, Sales, and Operating Ratios

Profits, Sales, and Operating Ratios

The Business

Environment

The Business

Environment

Key Questions to Ask

• Why is this business being sold?

• What is the physical condition of the business?

• What is the condition of the inventory?

• What is the state of the firm’s other assets?

• How many employees will remain?

• What type of competition does the business face?

• What does the firm’s financial picture look like?

Negotiating the Deal

Factors Affecting Negotiations

Factors Affecting Negotiations

Alternatives

Information

6.3 “Do’s and Don’ts of Buying a Business”

1 Have a seller retain a minority interest in the business.

2 Never rely on oral statements.

3 Have an accountant examine the books and check the cash flow.

4 Investigate, investigate, investigate!

5 Interview the employees.

6 Find out the real reason the company is for sale.

Source: Adapted from Bruce J Blechman, “Good Buy,” Entrepreneur (Feb 1994): 22-25

Reprinted with permission from Entrepreneur magazine, February 1994.

Franchising: The Hybrid

How a Franchise Works

• Franchisee Obligations:

1. Make a financial investment in the operation

2. Obtain and maintain a standardized inventory and/or equipment package usually purchased 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

How a Franchise Works (cont’d)

• Franchisor Provides:

1. The company name that provides drawing power

2. Identifying symbols, logos, designs, and facilities

3. Professional management training for each

independent unit’s staff

4. Sale of merchandise necessary for the unit’s

operation, equipment to run the operation, and the food or materials needed for the final product

5. Financial assistance, if needed

6. Continuing aid and guidance to ensure that

everything is done in accordance with the contract

6.4 The Cost of Franchising

1 The basic franchising fee

2 Insurance

3 Opening product inventory

4 Remodeling and leasehold improvements.

5 Utility charges

6 Payroll

7 Debt service

8 Bookkeeping and accounting fees

9 Legal and professional fees

10 State and local licenses, permits, and certificates

Source: Donald F Kuratko, “Achieving the American Dream as a Franchise,”

Small Business Network (July 1987): 2 updated by author, April, 2008

Franchise Law

• The Uniform Franchise

Offering Circular (UFOC)

 Is divided into 23 items that provide

different segments of information for

prospective franchisees

 Was developed to provide guidance

in complying with the Franchise

Disclosure Rule that requires

franchisors to make full presale

disclosure about their franchises

6.2 The Decision to Purchase a Franchise: Process Model

Source: Patrick J Kaufmann, “Franchising and the Choice of Self

Employment,” Journal of Business Venturing, 14(4): 1999: 348.

6.5 World Wide Web Franchise Sites

Sites for franchising

http://www.betheboss.com

http://franchise1.com

http://www.franchiseworks.com/

http://franchise.org/

6.5 World Wide Web Franchise Sites (cont’d)

American Bar Association Forum on Franchising www.abanet.org

U.S Small Business Administration www.sba.gov

Statistics – USA www.stat-usa.gov

Entrepreneur Magazine www.entrepreneur.com/franchises/bestofthebest/index.html Minority Business Entrepreneur Magazine www.mbemag.com

Franchise Times www.franchisetimes.com

Franchise Update www.franchise-update.com

Restaurant Business Magazine www.restaurantbiz.com

Source Book Publications www.worldfranchising.com

Federal Trade Commission http://www.ftc.gov/bcp/franchise/netfran.shtm

Franchise.com http://www.franchise.com/

World Franchising http://www.worldfranchising.com/

Franchise Solution http://www.franchisesolutions.com/

Franchise Opportunities http://www.franchiseopportunities.com/

Franchise Trade http://www.franchisetrade.com/

The Franchise Magazine http://www.thefranchisemagazine.net/

Franchise Info Mall http://www.franchiseinfomall.com/

Franchise Advantage http://www.franchiseadvantage.com

US Franchise News http://www.usfranchisenews.com/

Evaluating the Franchise Opportunity

Seeking Professional Help

Seeking Professional Help

Investigating the Franchisor

Investigating the Franchisor

The Franchise Opportunity Decision

Key Terms and Concepts

• unscrupulous practices

• upside gain and downside loss