Chapter 04 Revised

Franchises and Buyouts
Part 2 Starting From Scratch or Joining an Existing Business

PowerPoint Presentation by Charlie Cook The University of West Alabama
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.
Franchising
Franchising
A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the franchisor
Franchisee
An entrepreneur whose power is limited by a contractual agreement with a franchisor
Franchisor
The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 43
The Pros and Cons of Franchising

Advantages
Probability of success
Proven line of business Pre-qualification of franchisee
Limitations
Franchise costs
Initial franchise fee Investment costs Royalty payments Advertising costs
Training
Franchisor-provided
Financial assistance
Franchisor assistance
Operating benefits
Franchisor-aided
Restrictions on business operations Loss of independence Lack of franchisor support
44
Major Pluses and Minuses in the Franchising Calculation
Exhibit 4.1
Franchisor Controls on Franchisees

Restricting of sales territory Requiring site approval and imposing requirement on the outlets appearance Restricting the goods/ services that can be sold Requiring specific operating hours Controlling advertising
46
Estimate of Investment Costs by Great Clips
Note: This is an estimate only of the capital needed to open and operate your salon during the initial 12 months after you open for business. Great Clips cannot guarantee that you will not have additional expenses starting the business.
Source: http://www.greatclipsfranchise.com/investment.htm; April 27, 2004.
Exhibit 4.2
47
Franchising Agreements
Franchise contract
The legal agreement between franchisor and franchisee
Franchise
The privileges conveyed in the franchise contract
48
Franchising Arrangements
Product and Trade Name Franchise
Grants the right to use a widely recognized product or name
Business Format Franchise

Provides an entire marketing system and ongoing guidance from the franchisor
Master Licensee
An independent firm or individual acting as a sales agent with the responsibility for finding new franchises within a specified territory
49
Franchising Arrangements (contd.)

Multiple-Unit Ownership
The holding by a single franchisee of more than one franchise from the same company
Area Developers
Individuals or firms that obtain the legal right to open several franchised outlets in a given area
Piggyback Franchising
The operation of a retail franchise within the physical facilities of a host store
410
The Structure of Franchising
Exhibit 4.3
Evaluating Franchise Opportunities

Selecting a Franchise Opportunity
Personal observation Advertisements
Investigating the Potential Franchise

Information sources
Independent, third-party sources Federal Trade Commission Internet Franchise consultants Franchisors themselves Disclosure documents Existing and previous franchisees
Franchising from the Franchisors Perspective

Benefits
Reduction of capital requirements Increase in management motivation Speed of expansion
Drawbacks
Reduction in control Sharing of profits Increase in operational support costs
414
Legal Considerations in Franchising

The Franchising Contract
Signed with legal counsel present Contains a termination and transfer provision Contains a statement of rights to renew contract
415
Franchise Disclosure Requirements

Rule 436 of the Federal Trade Commission
Uniform Franchise Offering Circular (UFOC)
A document accepted by the Federal Trade Commission as satisfying its franchise disclosure requirements Litigation and bankruptcy history
Investment requirements
Conditions that would affect renewal, termination, or sale of the franchise http://www.ftc.gov/bcp/franchise/netrule.htm
416
Buying an Existing Business?

Acquisition of Ongoing Operations and Relationships A Quick Start
Reduction of Uncertainties
A Bargain Price
417
Buying an Existing Business

Reasons for Buying an Existing Business
To reduce some of the uncertainties and unknowns that must be faced in starting a business from the ground up To acquire a business with ongoing operations and established relationships with customers and suppliers To obtain an established business at a price below what a new business or franchise would cost To begin a business more quickly than starting from scratch
418
Pros and Cons of Buying an Existing Business

Pros
High chance of success Less planning Existing customers/ suppliers Necessary equipment Bargain price Experienced employees Existing business records
Cons
Existing problems Poor quality of current employees
Poor business image

Modernization required Purchase price based on inaccurate data Poor business location
419
Investigating and Evaluating Available Businesses

Due Diligence
The exercise of prudence, such as would be expected of a reasonable person, in the careful evaluation of a business opportunity
Relying on Professionals
Accountants Attorneys Other experienced business owners
420
Finding Out Why the Business Is For Sale

Owners reasons for selling the business
Old age or illness Desire to relocate to a different section of the country Decision to accept a position with another company Unprofitability of the business Loss of an exclusive sales franchise Maturing of the industry and lack of growth potential
Beware of sellers who may have cooked the books to make the business more attractive.
Examining the Financial Data

Review financial statements and tax returns for the past five years.
Recognize that financial data can be misleading.

Assets overvalued Expenses overstated/understated Income underreported Unrecorded debts
Adjust asset valuations to reflect the true state of the business.

Valuing the Business

Asset-Based Valuation
Estimates the value of the firms assets; does not reflect the value of the firm as a going concern.
Market-Comparable Valuation
Considers the sale prices of comparable firms; difficulty is in finding comparable firms.
Cash-Flow-based Valuation
Compares the expected and required rates of return on the amount of capital to be invested in the business.
Nonquantitative Factors in Valuing a Business

Competition
Market Future Community Development Legal Commitments Union Contracts Buildings Product Prices
424
Negotiating and Closing the Deal

Terms of Purchase
Assets purchase or total entity Indemnification clause Payment in full or partial payments over time
Closing the sale

Best handled by a third party
Bill of sale Tax certifications Payment-to-seller agreements and guarantees
425

Chapter 04 Revised

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Chapter 04 Revised

Hochgeladen von

Copyright:

Verfügbare Formate

Franchises and Buyouts

Part 2 Starting From Scratch or Joining an Existing Business

The Pros and Cons of Franchising

Restrictions on business operations Loss of independence Lack of franchisor support

Major Pluses and Minuses in the Franchising Calculation

Franchisor Controls on Franchisees

Estimate of Investment Costs by Great Clips

Source: http://www.greatclipsfranchise.com/investment.htm; April 27, 2004.

Business Format Franchise

Franchising Arrangements (contd.)

The Structure of Franchising

Evaluating Franchise Opportunities

Investigating the Potential Franchise

Franchising from the Franchisors Perspective

Legal Considerations in Franchising

Franchise Disclosure Requirements

Buying an Existing Business?

Buying an Existing Business

Pros and Cons of Buying an Existing Business

Poor business image

Investigating and Evaluating Available Businesses

Finding Out Why the Business Is For Sale

Examining the Financial Data

Recognize that financial data can be misleading.

Adjust asset valuations to reflect the true state of the business.

Valuing the Business

Nonquantitative Factors in Valuing a Business

Negotiating and Closing the Deal

Closing the sale

Das könnte Ihnen auch gefallen