Buying an existing business or turnaround business and opening franchises are two options for entrepreneurship. When buying an existing business, advantages include an established business, lower costs, and established policies, while disadvantages include negative seller motivation and key employee losses. Evaluating a turnaround business requires analyzing assets, operations, and the business environment. Guidelines for purchasing turnarounds include establishing a clear market/product, determining profit margins, achieving sales, implementing financial controls, and analyzing statements. Franchising provides advantages like a proven product and business plan but also has disadvantages like restrictions and high startup expenses. Proper evaluation of the franchiser and an understanding of franchise fees are important.

1. Buying Existing and
Turnaround Businesses
Opening Franchises.
Patterns of Entrepreneurship
Chapter 12

2. • Buying an Existing Business
• Risks and reasons the business is for sale
• The Business is not Adequately Capitalized
• The Pressures of Business and Personal
Finances
• The Owners Lose Interest or the Death of a
owner
–
Choosing the Right Business

3. Primary Advantages to Consider when Buying
an Existing Business.:
Established Business
Lower Costs
Fewer Personnel Changes
More Established Policies

4. Primary Disadvantages to Consider
when Buying an Existing Business.
Negative Motivation on the Part
of the Seller
Key Employee Losses.
Overvaluation

5. BUYING A TURNAROUND
BUSINESS
• There are three categories of a business that should
be evaluated in the turnaround plan.
• The business assets that can be evaluated in terms of
book or market value.
• The business operations to examine sale trends,
credit policies, pricing, promotional activities, and
distribution systems. Also, the buyer will want to
understand human-resources issues, including how
the owner’s personal skills and abilities influence
operations and whether capable employees will stay
after acquisition.
• The evaluation of the business environment.

6. Guidelines for Purchasing
Turnarounds
• Market and Product Offering. The concept for what
product or service the company will offer must become
clear before the business can succeed
• Determining the Margin or Profit for the Business.
Profit margins vary with the industry, but the product
must sell to the end user for at least four to five times
the direct costs and labor and materials needed to
produce it.
• Achieving Sales. Obtaining a few sales or one big sale
are not enough for a sustainable business

7. Guidelines for Purchasing
Turnarounds
Financial Controls. The projected financial
statement is an important tool for managing
the business successfully
Analyzing Gross Profit Statements. The
gross profit analysis will describe, by
product line, where the gross profit is
generated.

8. Guidelines for Purchasing
Turnarounds
Analyzing Income Statements. The income
statement shows where the business is going by
summarizing how much the entrepreneur is
selling, spending, and earning from the
operations
Analyzing Cash Flow Statements. No matter
how profitable the business is, it is critical to
manage the cash effectively.

9. Introduction to Franchising
What is franchising?
A franchise is “an arrangement by the
manufacturer or sole distributor of a trademarked
product or service that provides exclusive rights
of local distribution to independent retailers in
return for their payment of royalties.

10. Introduction to Datamark
• What is the franchiser’s reputation?
• Is the franchiser now involved in any litigation?
• Is training and start-up assistance available?
• What is the management structure of the organization?
• Is the location and territory protected?
• What are the operating practices of the franchise?
• What are the franchise’s start-up costs?
• How can the purchase be financed?
• What are the terms of renewal and termination of the contract or
agreement?
Evaluating a Potential Franchiser

11. Evaluation of a Franchise
A franchise can be a very attractive way to operate one’s
own business because of the following advantages
Proven Product
Established Business Plan
Financing Assistance
Knowledge of Market and Capital Assistance
Attained success stories
Buying a franchise

12. Disadvantages of Franchising
• Restrictions in Decision-Making. Unlike starting one’s own
venture, the entrepreneur will not be “his or her own boss.”
• High Start-Up Expenses. The initial franchise fee is
frequently non-refundable and is often a sizable amount..
• Selection and Price Restrictions. The franchisee may
be restricted in establishing selling prices, introducing new
products and services, and adjusting the supply cycles to
meet current demands..

13. Initial franchise fees: the initial fee is a single payment by the
buyer to acquire the franchise rights
Royalties: The heart of a franchise program is the ongoing
income derived from sales. There are several ways to structure
royalties, but the most common is a percentage of gross sales.
Service to franchisees: Franchise agreements can specify fees
for which franchisees pay a retainer or periodic fee.
Analyzing the Franchise Fee Structure

14. Analyzing the Franchise Fee Structure
 Promotional fees:National promotion and
advertising fees are specified in the franchise
agreement. This can be a small percentage of sales,
seldom any more than 1 percent, or a flat monthly
fee.
 Periodically, additional fees are collected for joint
promotional campaigns.
 Real estate income: New franchise outlets that
require unique physical facilities are usually built
by franchisers and leased to franchisees.
 Examples include stand-alone 7-Eleven markets,
Jiffy Lube garages, and McDonald’s restaurants.