The document discusses acquiring an established business venture through purchasing an existing business. It notes that buying an existing business can represent less risk than starting a new business from scratch. However, one must perform due diligence to understand the terms of the purchase. The document provides advice on evaluating business opportunities and established ventures through examining financial records, operations, competition, and viability factors. It also discusses different business valuation methods like asset-based, earnings-based, and market-based approaches.

1. MODULE III
ACQUIRING AN ESTABLISHED VENTURE
PRESENTED BY
JIYAS.K
S2 MBA
IMK KARIAVATTOM

2. • For some entrepreneurs, buying an existing business represents
less of a risk than starting a new business from scratch. While
the opportunity may be less risky in some aspects, you must
perform due diligence to ensure that you are fully aware of the
terms of the purchase.
• If you have decided to buy an existing business, you will want
to be sure you are making the right choice in your new venture.
Only you can determine the right business for your needs.

3. Acquiring an Established Venture Represents less of a gamble (risk) than starting a new business.
 Established business comes with an existing customer base & you
can start trading straight away.
 But buying a business is complex & time consuming process.
 Need to check:
 Business records
 Plans & Operations
 Familiarize yourself with your competitors & industry
 Check Licenses, Permits & Registrations (Which of above mentioned
are transferable)

4. Acquiring an Established Venture
 Before Acquiring an Established Venture understand:
1. Which markets to enter.
2. When to enter & on what scale.
3. Which entry mode to use.
Acquiring a
Business Venture
Asking Key
Questions
Examination of
Opportunities
Evaluation of
the Venture
Personal
Preferences

5. Advantages of Acquiring an Established Venture
 Buying a business is generally considered less risky.
 The difficult start-up work has already been done. The business
should have plans and procedures in place.
 Buying an established business means immediate cash flow.
 The business will have a financial history, which gives you an
idea of what to expect and can make it easier to secure loans
and attract investors.
 You will acquire existing customers, contacts, goodwill,
suppliers, staff, plant, equipment and stock.

6. Disadvantages of Acquiring an Established Venture
 The business might need major improvements to old plant
and equipment.
 You often need to invest a large amount up front, and will also
have to budget for professional fees for solicitors and
accountants.
 The business may be poorly located or badly managed, with
low staff morale.
 External factors, such as increasing competition or a declining
industry, can affect future growth.

7. Evaluating an Established Venture
1. Income statements
2. Records of accounts receivable and payable
3. Balance sheets and tax returns including business activity statements (last
3-5 years)
4. Profit and loss records (last 2-3 years)
5. Cash deposit records
6. Bank loans and lines or letters of credit
7. Minutes of director's meetings/management meetings

8.  CONSIDERATIONS FOR EVALUATION BUSINESS
OPPORTUNITIES
A business opportunity can be defined as a sound business idea which
forms the basis upon which an entrepreneur makes a firm investment
decision.
FACTORS TO CONSIDER WHEN EVALUATING VIABLE BUSINESS
OPPORTUNITIES
An entrepreneur needs to determine whether the business idea they have in
mind is viable or not. When evaluating the viability of the business opportunity,
the following factors need to be taken into consideration:
• Potential for growth:
An opportunity is said to be viable, when it has the ability to grow and expand.
• Infrastructure:
Easy access to infrastructure such as roads, water, electricity, telephone and
postal services among others enables business enterprises easily make orders
for goods and deliver them hence reducing operating expenses. With low
operating expenses, profits can be maximized.

9.  • Market for the goods and services:
An entrepreneur has to access potential and actual market for the goods and
services he would like to sell. There must be a clearly defined market if the
opportunity is to be considered
 Rewarding to the investor:
The opportunity should be rewarding to the investor (cost-benefit
consideration). He should consider the expected returns against the expected
cost to ensure that the benefits outweigh the cost.
• Price structure:
One has to put into consideration the price-structure of the goods and services
he would like to offer. Goods and services, which are subjected to constant
inflation, are likely to change in terms of price.
• Competition and Competitive advantage:
Competition is regarded as a threat to business of similar kinds operating in a
similar location. Although competition is a threat, it is healthy in the sense that
it goes along the way in controlling price of goods offered.

10. • Incentives:
Offered by the government and Non-Governmental Organizations, incentives
are legitimate business opportunities to exploit as they save on costs. E.g. duty
free importation of sugar and maize, tax waivers, e.t.c.
• Legal Consideration:
The new idea should be in line with the legal regulatory framework e.g. an
idea to sell drugs may not be viable because it is illegal.
•Financial viability:
The assessment of financial viability is of significant importance when
looking at the viability of the business. Capital investment requirements,
break even analysis, cash flow projections, profitability of the business have
to be analyzed.

12. Asset-Based Approaches
Asset-based business valuations can be done on a going concern or on a liquidation
basis.
•A going concern asset-based approach lists the business's net balance sheet value
of its assets and subtracts the value of its liabilities.
•A liquidation asset-based approach determines the net cash that would be received
if all assets were sold and liabilities paid off.
•Using the asset-based approach to value a sole proprietorship is more difficult. In
a corporation all assets are owned by the company and would normally be included
in a sale of the business. Assets in a sole proprietorship exist in the name of the
owner and separating assets from business and personal use can be difficult.

13. . Earning Value Approaches
These business valuation methods are predicated on the idea that a business's true
value lies in its ability to produce wealth in the future. The most common earning
value approach is Capitalizing Past Earning.
With this approach, a valuator determines an expected level of cash flow for the
company using a company's record of past earnings, normalizes them for unusual
revenue or expenses, and multiplies the expected normalized cash flows by a
capitalization factor.
The capitalization factor is a reflection of what rate of return a reasonable purchaser
would expect on the investment, as well as a measure of the risk that the expected
earnings will not be achieved.

14. Market Value Approaches
Market value approaches to business valuation attempt to establish the
value of your business by comparing your business to similar businesses
that have recently sold. Obviously, this method is only going to work well if
there are a sufficient number of similar businesses to compare.
Assigning a value to a sole proprietorship based on market value is
particularly difficult. By definition,​ sole proprietorships are individually
owned so attempting to find public information on prior sales of like
businesses is not an easy task.
Although the Earning Value Approach is the most popular business
valuation method, for most businesses, some combination of business
valuation methods will be the fairest way to set a selling price

15. Franchising is the practice of the right to use a firm's
business model and brand for a prescribed period of time.
It is a deal between a franchisor and franchisee. Here
franchisor agrees to share his trademarks, copy
rights, technological knowhow, with franchisee. In return
of which the franchisee has to pay a fixed amount of
royalty to the franchisor.

16. Type of Franchising
1. Manufacturing
2. Retailing
3. Standardized business structure

17. Advantages of franchising
 Enables franchisee to use brand name of the
franchisor.
 Enables the franchisee to enter the well-established
business.
 Enables the franchisee to get marketing support from
franchisor.
 Franchisee can be aware of the new technologies used
by franchisor.
 Franchisee can use reedy made business plan
developed by franchiser.

18. Franchise Perspective

19. Franchise Perspective
Two kind of perspective;
1. Franchisor's
2. Franchisee’s

20. The franchisor's perspective
1. Lesser capital needs
2. Shared risk
3. Quicker expansion
4. Local motivation.
5. Opportunity and risk
6. Effective division of work generates less overhead
and less risk

21. Franchisee’s Perspective
 Get to know the local growers
 Promote a healthy lifestyle
 Grow with the industry
 Embrace the innovative concept that is the driving
force

23. Thank You