Chap005
Upcoming SlideShare
Loading in...5
×
 

Chap005

on

  • 1,341 views

 

Statistics

Views

Total Views
1,341
Views on SlideShare
1,341
Embed Views
0

Actions

Likes
0
Downloads
22
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment
  • Company: H&R Block
  • More than 600,000 businesses are started each year.
  • Although corporations make up only 20 percent of the total number of businesses, they make 81 percent of the total receipts. Sole proprietorships are the most common form (72 percent), but they earn only 6 percent of the receipts.
  • Ethnic Business Centers This slide presents Forbes ’ 2011 top 5 U.S. cities for minority-run businesses. Most of these cities are situated in the South. However, we tend to hear a lot about the high population numbers of Asians in San Francisco or Hispanics in Los Angeles. Milwaukee, WI was listed last at #40 in ethnic population growth. To promote discussion, ask the students: Why do you think these cities attract minority-run companies? Don ’t just focus on the businesses, also look at the total population and customer base.
  • See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. This slide helps students understand why sole proprietorships account for the largest number of businesses in the United States.
  • See Learning Goal 1: Compare the advantages and disadvantages of sole proprietorships. Since the main advantage of sole proprietorships is the ease by which they can be started, this slide gives students the reason why this form of ownership only accounts for such a small percentage of overall total revenue. Special emphasis should be given to the disadvantage of unlimited liability (personal assets at risk), and to the time commitment (24 hours, 7 days per week, and 365 days per year).
  • The primary advantages of sole proprietors are: Ease of starting and ending the business, being your own boss, pride of ownership. leaving a legacy, retention of company profits, no special taxes. Disadvantages include: Unlimited liability, limited financial resources, management difficulties, overwhelming time commitment, few fringe benefits, limited growth, limited life span. 2) With unlimited liability, the sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your home, car, or whatever else you own.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Each type of partnership has advantages and disadvantages. In a general partnership resources are pooled and liability is spread among all partners. However, in this type of partnership there is the possibility for disagreement and/or personality conflicts. A limited partnership is made up of a mixture of general partners and limited partners. Limited partners cannot actively take part in business dealings.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. The limited partner is not able to exercise any management control over the partnership, but maintains limited liability. A limited partner ’s liability is limited to the amount invested in the partnership.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. There are two less common forms of partnerships outlined in this slide: master limited partnership and the limited liability partnership. The master limited partnership is unique because it combines the tax benefits of a more traditional partnership and the liquidity of a publicly traded security. One example of a master limited partnership is Kinder Morgan Energy Partners which is engaged in energy storage and operates 26,000 miles of pipelines.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Partnerships have some distinct advantages. The key advantage is that partnerships have access to more resources, such as financial resources, management skills and knowledge.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Like the sole proprietorship, a partnership has some serious disadvantages such as unlimited liability and division of profits. One disadvantage that students might not consider is disagreement among partners.
  • See Learning Goal 2: Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. Successful partnerships start with a shared vision. In order to develop a successful partnership, all partners must be honest with each other and bring a variety of different skills to the partnership. Suggestions to discuss with students regarding partnerships: Partnership agreements must be in writing! Each individual ’s responsibilities to the company must be in writing and included as part of the contract. Make certain that provisions are in place if one or more partners want to terminate the agreement. Information outlining the terms and conditions of terminating any agreement, should be outlined in the original contract.
  • 1) A general partner is an owner who has unlimited liability and can be active in managing the firm. A limited partner is an owner who invests money in the business, but does not have any management responsibility or liability for losses beyond his or her investment. 2) Some of the advantages of partnerships are: More financial resources, shared management and pooled/complementary skills and knowledge, longer survival, no special taxes. Disadvantages of partnerships include: Unlimited liability (for general partners), division of profits, disagreements among partners, difficulty of termination.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. You don ’t have to be big to incorporate. Incorporating may be beneficial for small businesses as well.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. The major advantage of corporate ownership is limited liability protection (personal assets are protected). Interesting facts regarding incorporating a business: the cost for a business to incorporate ranges from about $50 to over $300, plus states’ fees. Over half of Fortune 500 companies choose to incorporate in Delaware because the state ’s laws make the process easier than it is in other states.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. World ’s Largest Corporations This slide presents Fortune ’s 2011 top 5 U.S. corporations. Ask the students: Several of the companies in the top ten deal with similar products/services; how are the products/services these companies sell similar? (Exxon Mobil, Chevron, and ConocoPhillips are all oil companies.)
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Largest Private Companies This slide presents America ’s top 10 private companies in 2011. Ask the students to debate why a company may want to remain private. (Some of the reasons may be control, privacy, no external pressure, and preference.)
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Double taxation is a major disadvantage of corporations. A corporation is taxed on income earned, and then shareholders are taxed on any dividends the company may pay.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Even the Big Guys Make Mistakes This slide presents examples of mistakes made by big corporations. Sometimes mistakes can be rectified (as in the case of Coca-Cola withdrawing New Coke), but sometimes they contribute to the company going out of business.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. America ’s Oldest Companies This is an interesting slide that identifies companies that have been in business for over 200 years. A few facts you may wish to address with the students: JE Rhoads & Sons is the oldest company in the U.S. and started off tanning leather for Buggy Whips. Philadelphia Contributorship Insurance was formed based on a suggestion by Benjamin Franklin regarding the establishment of a volunteer fire brigade, which eventually developed into an insurance company. The Bank of New York, New York ’s first bank, was opened for business in Lower Manhattan on June 9th, 1784, only a few months after the departure of British Troops from American soil. (Bank of New York merged with Mellon Financial Corporation of Pittsburgh and was renamed Bank of New York Mellon in 2007.) Environmental changes in the business world will always happen; those companies that embrace change and provide quality goods and services will continue to profit. Discuss with the students the significant amount of commitment a company must have to stay in business. ( Some areas that must continually be addressed are changes in societal culture, competition, economy, laws/politics, and technology changes.)
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. An S corporation looks like a corporation, but is taxed like a sole proprietorship or partnership. The primary advantage of an S corporation is that it avoids the double taxation of a C corporation. Approximately 3 million U.S. companies operate as S corporations.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Originally to qualify as an S Corporation, the number of shareholders was limited to 75. This has now been amended to no more than 100.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Advantages and disadvantages of LLCs are listed in this slide. The biggest advantages of LLCs are limited liability and flexibility.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Primary disadvantages from entrepreneurs’ perspectives would be limited life span and paperwork.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies.
  • Advantages of incorporating a business include: Limited liability, ability to raise more money for investment, size, perpetual life, ease of ownership change, ease of attracting talented employees, separation of ownership from management. Disadvantages of incorporating are: Initial cost, extensive paperwork, double taxation, two tax returns, size, difficulty to terminate, possible conflict with stockholders and board of directors. 2) Stockholders do not have to be employees of the corporation. They are investors who have limited liability. Stockholders elect the board of directors of a company who select the management to control the company. 3) Stockholders in a corporation have limited liability meaning as owners they are responsible for its losses only up to the amount they invested. The corporation could be sued and forced out-of-business but the stockholder would only lose what he/she invested. 4) Limited liability companies have become a popular way to form a business since all fifty states now recognize LLCs. Some of the advantages of LLCs are: Limited liability, choice of taxation (can be taxed as a partnership or corporation), flexible ownership rules, flexible distribution of profit and losses, operating flexibility.
  • See Learning Goal 4: Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. Merger mania of the late 1990s reached its peak in 2000. By 2009, the U.S. economy caused the volume of mergers and acquisitions to plummet 86%! In 2010, mergers increased 14%.
  • See Learning Goal 3: Compare the advantages and disadvantages of corporations, and summarize the differences between C corporations, S corporations, and limited liability companies. Keep Growing… This slide covers the amount spent on acquisitions by big businesses and the number of completed or pending deals since 2005. Much of corporate growth relies on acquisitions.
  • See Learning Goal 4: Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. There are three types of mergers. Horizontal mergers take place in the same industry (i.e., one competitor merging with another). An example of this would be Daimler Mercedes Benz merging with Chrysler to create DaimlerChrysler in the 1990s. Vertical merger takes place between companies in a value chain, for example a supplier and a distributor merging. Conglomerate merger has no relationship between companies; both Tyco and General Electric operate as conglomerates.
  • See Learning Goal 4: Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Make Way for the Newbies New franchise opportunities pop up all the time and this slide shows the top 10 new companies from Entrepreneur ’s Franchise 500. Take notice that all the listed companies here are in the service sector. This can promote discussion on the evolution of American business. Ask students: Why do you think there is growth in these service franchises, such as senior in-home care and health?
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Franchising has a lower failure rate because the franchisee has support from the franchisor. This support can range from marketing to financial.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Benefits of a Home-Based Franchise Home-based businesses are growing at an enormous rate. This slide helps clarify some of the reasons why. Share with the class some tips on getting started: Decide on business idea Set goals for the business How many hours do you want to work? How many employees do you want? How much money will you need to get started? Visit www.e-myth.com for more online information regarding start-ups.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. Home Sweet Home Many franchisees are looking toward home-based businesses. These ten franchises have held their own despite the recent economic crisis. Some of these companies, like Jazzercise, require franchisees to rent space for client-based activities. However, the businesses can be run from the home.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. What to Choose? This is valuable information that must be examined by anyone wishing to purchase a franchise. The number-one reason why franchises fail is due to miscalculation of start-up costs and operating costs. Examine all costs carefully. It is important to understand that all franchise opportunities are not created equal. Suggest to the class that anyone interested in a franchise should also follow these additional guidelines: Have an attorney experienced in franchise contracts review the agreement. Hire a CPA to review all financial statements. This is commonly referred to as performing a “due diligence.” Interview other franchise owners. Have experience in the industry.
  • See Learning Goal 5: Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. High Flyers This slide lists ten high-performing franchises. As mentioned earlier, not all franchises are created equal and require careful investigation before considering an investment. Websites like www.franchise.com provide information such as the cost of thousands of franchise systems. Ask students: What makes an effective franchisor? ( Answers will vary, but should include name recognition, financial stability, innovative product and effective business management.)
  • See Learning Goal 6: Explain the role of cooperatives.
  • 1) Before buying a franchise be sure to check a company ’s (franchisor’s) resources and reputation. There are many franchising scams. The checklist on p. 136 gives advice about things to consider before buying a franchise. 2) Successful franchising in global markets offers the same opportunities as in domestic markets. However, franchisors must be careful to adapt to the region where they wish to expand. McDonald’s for example has more than 32,000 restaurants in 117 countries. 3) A cooperative is a form of business that is owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain. Cooperatives are a major force in agriculture and other industries today.

Chap005 Chap005 Presentation Transcript

  • Chapter 05 How to Form a BusinessMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
  • Chapter Five LEARNING GOALS 1. Compare the advantages and disadvantages of sole proprietorships. 2. Describe the differences between general and limited partners, and compare the advantages and disadvantages of partnerships. 3. Compare the advantages and disadvantages of corporations and summarize the differences between C corporations, S corporations and limited liability companies. 5-2
  • Chapter Five LEARNING GOALS 4. Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. 5. Outline the advantages and disadvantages of franchises, and discuss the opportunities for diversity in franchising and the challenges of global franchising. 6. Explain the role of cooperatives. 5-3
  • Profile MARY ELLEN SHEETS Two Men and a Truck • Bought an old truck and placed an ad in the local paper stating, “Two Men and a Truck.” • Wanted her sons to have work during summer vacation. Now they earn $193.3 million annually. • Expanded through franchising and are branching out to the UK. 5-4
  • Chapter Five NAME that COMPANY Around April 15th every year, we are a very sought out company. With thousands of locations in the U.S. we make tax filing much easier. Most people are unaware that we are actually a Canadian franchise even though we have our headquarters in the U.S. Name that company! 5-5
  • Basic Forms ofBusinessOwnership MAJOR FORMS of OWNERSHIP • Sole Proprietorship -- A business owned, and usually managed, by one person. • Partnership -- Two or more people legally agree to become co-owners of a business. • Corporation -- A legal entity with authority to act and have liability apart from its owners. 5-6
  • Basic Forms ofBusinessOwnership FORMS of BUSINESS OWNERSHIP 5-7
  • Basic Forms ofBusinessOwnership ETHNIC BUSINESS CENTERS Cities with the Most Minority-Run Firms 1. Atlanta, GA 2. Baltimore, MD 3. Nashville, TN 4. Houston, TX 5. Miami - Ft. Lauderdale, FL Photo Courtesy of: James Rintamaki Source: Forbes, April 11, 2011. 5-8
  • Advantages ofSoleProprietorships MAJOR BENEFITS of SOLE LG1 PROPRIETORSHIP 1) Ease of starting and ending the business 2) Being your own boss 3) Pride of ownership 4) Leaving a legacy 5) Retention of company profit 6) No special taxes 5-9
  • Disadvantagesof SoleProprietorships DISADVANTAGES of SOLE LG1 PROPRIETORSHIPS 1) Unlimited Liability -- Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. 2) Limited financial resources 3) Management difficulties 4) Overwhelming time commitment 5) Few fringe benefits 6) Limited growth 7) Limited life span 5-10
  • ProgressAssessment PROGRESS ASSESSMENT • Most people who start businesses in the U.S. are sole proprietors. What are the advantages and disadvantages of sole proprietorships? • Why would unlimited liability be considered a major drawback to sole proprietorships? 5-11
  • Partnerships MAJOR TYPES of PARTNERSHIPS LG2 • General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. • Limited Partnership -- A partnership with one or more general partners and one or more limited partners. 5-12
  • Partnerships TYPES OF PARTNERS LG2 • General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm. • Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk. 5-13
  • Partnerships OTHER FORMS of LG2 PARTNERSHIPS • Master Limited Partnership -- A partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax. • Limited Liability Partnership -- Limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision. 5-14
  • Advantages &Disadvantagesof Partnerships ADVANTAGES of LG2 PARTNERSHIPS • More financial resources • Shared management and pooled/complementary skills and knowledge • Longer survival • No special taxes 5-15
  • Advantages &Disadvantagesof Partnerships DISADVANTAGES of LG2 PARTNERSHIPS • Unlimited liability • Division of profits • Disagreements among partners • Difficult to terminate 5-16
  • The TIES that BIND (Spotlight on Small Business)There is no such thing as a perfect partner but ask these questions when you try to find your best match:• Do you share the same goals?• Do you share the same vision for the company?• What skills does he/she have? Are yours the same?• What can he/she bring to the business?• What type of decision maker is he/she?• Do you trust each other?• How does he/she problem solve? 5-17
  • ProgressAssessment PROGRESS ASSESSMENT • What’s the difference between a limited partner and a general partner? • What are some of the advantages and disadvantages of partnerships? 5-18
  • Corporations CONVENTIONAL LG3 CORPORATIONS • Conventional (C) Corporation -- A state- chartered legal entity with authority to act and have liability separate from its owners (its stockholders). 5-19
  • Advantages ofCorporations ADVANTAGES of LG3 CORPORATIONS • Limited liability • Ability to raise more money for investment • Size • Perpetual life • Ease of ownership change • Ease of attracting talented employees • Separation of ownership from management 5-20
  • Advantages ofCorporations HOW OWNERS AFFECT LG3 MANAGEMENT 5-21
  • Advantages ofCorporations The BIG BOYS of BUSINESS LG3 America’s Largest Corporations 1. Walmart 2. Exxon Mobil 3. Chevron 4. ConocoPhillips 5. Fannie Mae Photo Courtesy of: Walmart Stores Source: Fortune, www.fortune.com, accessed June 2011. 5-22
  • Advantages ofCorporations PRIVACY PLEASE LG3 The Ten Largest Private Corporations in the U.S. Source: Forbes, www.forbes.com, accessed June 2011. 5-23
  • Disadvantagesof Corporations DISADVANTAGES of LG3 CORPORATIONS • Initial cost • Extensive paperwork • Double taxation • Two tax returns • Size • Difficulty of termination • Possible conflict with stockholders and board of directors 5-24
  • Disadvantagesof Corporations EVEN the BIG GUYS LG3 MAKE MISTAKES Source: Bloomberg Businessweek, May 16, 2011. 5-25
  • Individuals CanIncorporate WHO CAN INCORPORATE? LG3 • Anyone - truckers, doctors, plumbers, athletes and small business owners can incorporate. • Normally stock is not issued to outsiders when individuals incorporate, so the advantages and disadvantages are not exactly the same as for large corporations. • Major advantages are limited liability and possible tax benefits. 5-26
  • Individuals CanIncorporate OLDIES BUT GOODIES LG3 America’s Oldest Corporations 5-27
  • S Corporations S CORPORATIONS LG3 • S Corporation -- A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships. • S corporations have shareholders, directors and employees, plus the benefit of limited liability. • Profits are taxed only as the personal income of the shareholder. 5-28
  • S Corporations WHO CAN FORM LG3 S CORPORATIONS? • Qualifications for S Corporations: - Have no more than 100 shareholders. - Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S. - Have only one class of stock. - Derive no more than 25% of income from passive sources. • If an S corporation loses its S status, it may not operate under it again for at least 5 years. 5-29
  • Limited LiabilityCompanies LIMITED LIABILITY COMPANIES LG3 • Limited Liability Company (LLC) -- Similar to an S corporation, but without the eligibility requirements. • Advantages of LLCs: - Limited liability - Choice of taxation - Flexible ownership rules - Flexible distribution of profits and losses - Operating flexibility 5-30
  • Limited LiabilityCompanies DISADVANTAGES of LLCs LG3 • No stock, therefore ownership is nontransferable • Limited life span • Fewer incentives • Taxes • Paperwork 5-31
  • VIRTUAL COMPANIES (Legal Briefcase)• Vermont allows a new kind of LLC that exists only online.• Registration documents can be filed online, meetings can be held through online communication, and relationships can be established electronically.• Virtual companies allow online contributors with different skills, availability and interest to interact and be successful. 5-32
  • ProgressAssessment PROGRESS ASSESSMENT • What are the major advantages and disadvantages of incorporating a business? • What’s the role of owners (stockholders) in the corporate hierarchy? • If you buy stock in a corporation and someone gets injured by one of the corporation’s products, can you be sued? Why or why not? • Why are so many new businesses choosing a limited liability company (LLC) form of ownership? 5-33
  • CorporateExpansion:Mergers and MERGERS and ACQUISITIONSAcquisitions LG4 • Merger -- The result of two firms joining to form one company. • Acquisition -- One company’s purchase of the property and obligations of another company. 5-34
  • CorporateExpansion:Mergers andAcquisitions KEEP GROWING… LG4 Big Business‘ Acquisitions Spending Source: Bloomberg Businessweek, October 18, 2010. 5-35
  • CorporateExpansion:Mergers and TYPES of MERGERSAcquisitions LG4 • Vertical Merger -- Joins two firms in different stages of related businesses. • Horizontal Merger -- Joins two firms in the same industry and allows them to diversify or expand their products. • Conglomerate Merger -- Unites firms in completely unrelated industries in order to diversify business operations and investments. 5-36
  • CorporateExpansion:Mergers and LEVERAGED BUYOUTSAcquisitions LG4 • Leveraged Buyout (LBO) -- An attempt by employees, management or a group of investors to buy out the stockholders in a company. • LBOs have ranged in size from $50 million to $31 billion and have involved everything from small businesses to giant corporations. • In 2010, foreign investors poured $300 billion into U.S. companies. 5-37
  • Franchises FRANCHISING LG5 • Franchise Agreement -- An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory. • More than 825,000 franchised businesses operate in the U.S., employing approximately 17.5 million people. 5-38
  • Franchises MAKE WAY for the NEWBIES Top New Franchises LG5 Source: Entrepreneur, March 2010. 5-39
  • PLAY BALL but PLAY GREEN (Thinking Green)• The Nationals in D.C. have the first sports stadium to earn the Leadership in Energy and Environmental Design (LEED) Rating.• 95% of the stadium’s steel was recycled and low- flow toilets save millions of gallons of water.• New York stadiums for the Mets, Giants and Jets have also earned green certifications. 5-40
  • Advantages ofFranchises ADVANTAGES of FRANCHISING LG5 • Management and marketing assistance • Personal ownership • Nationally recognized name • Financial advice and assistance • Lower failure rate 5-41
  • Disadvantagesof Franchises DISADVANTAGES of LG5 FRANCHISING • Large start-up costs • Shared profit • Management regulation • Coattail effects • Restrictions on selling • Fraudulent franchisors 5-42
  • Diversity inFranchising WOMEN in FRANCHISING LG5 • Women own about half of U.S. companies, yet ownership of franchises is about 25%. • Firms owned by women have grown at twice the rate of all companies. • More women are becoming franchisors. Auntie Anne’s and Jazzercise and are owned by women. 5-43
  • Diversity inFranchising MINORITY-OWNED LG5 FRANCHISES • MinorityFran is an initiative to build awareness of franchising opportunities within minority communities. • Domino’s Pizza launched a minority franchise recruitment program called Delivering the Dream. Photo Courtesy of: Tom Magliery • Over 20% of franchises are minority-owned. 5-44
  • Home-BasedFranchises HOME-BASED FRANCHISES LG5 Advantages: • Relief from commuting stress • Extra family time • Low overhead expenses Main Disadvantages: • Isolation • Long hours 5-45
  • Home-BasedFranchises HOME SWEET HOME LG5 Top Home-Based Franchises Source: Neema P. Roshania, Kiplinger, January 2011. 5-46
  • E-Commerce inFranchising E-COMMERCE LG5 in FRANCHISHING • Most brick-and-mortar franchises have expanded to the Internet. • Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt. • Sometimes “reverse royalties” are sent to franchisees who believe their sales were hurt by the franchisor’s site. • Other franchises are solely based online. 5-47
  • FRANCHISE EXPANSION on FACEBOOK (Social Media in Business)• Many businesses use social media to communicate with potential investors and franchisees.• Hä agen-Dazs launched a simulation game called Ice Cream Boss on Facebook.• The company hopes that players may move on to become franchisees of real Hä agen-Dazs stores. 5-48
  • Franchising inInternationalMarkets GLOBAL FRANCHISING LG5 • Canada is the most popular target for U.S.-based franchises. China, South Africa, the Philippines and the Middle East are becoming popular despite high cost. • Franchising is successful when the product is convenient, high quality, great service is included and the franchisee adapts to the region. • International franchising goes both ways – some foreign franchises have come to the U.S. 5-49
  • Franchising inInternationalMarkets WHAT to CHOOSE? LG5 Picking Franchises that May Survive a Recession • Focus on tried-and-true name brands. • Stick to core goods and services. • Be choosy about the site. • Don’t pinch pennies. • Have a fallback choice. • Don’t assume the franchise will pay off. Source: Richard Gibson, Wall Street Journal, www.wsj.com, accessed June 2011. 5-50
  • Franchising inInternationalMarkets HIGH FLYERS LG5 Ten High-Performing Franchises 1. Hampton Hotels 2. AMPM 3. McDonald’s 4. 7-Eleven 5. Supercuts 6. Days Inn 7. Vanguard Cleaning Systems 8. Servpro Photo Courtesy of: Innisfree Hotels 9. Subway 10. Denny’s Source: Entrepreneur, January 2011. 5-51
  • Cooperatives COOPERATIVES LG6 • Cooperatives -- Businesses owned and controlled by the people who use them– producers, consumers, or workers with similar needs who pool their resources for mutual gain. • Worldwide, 750,000 co-ops serve 730 million members – 120 million in the U.S. • Members democratically control the business by electing a board of directors that hires professional management. 5-52
  • ProgressAssessment PROGRESS ASSESSMENT • What are some of the factors to consider before buying a franchise? • What opportunities are available for starting a global franchise? • What’s a cooperative? 5-53