METHODS OF START-UP


What type of business should I get involved with?
Is it better to buy an existing business, start one up or buy a franchise?

TYPES OF BUSINESS START-UP

I. Buying an Existing Business
II. Starting Your Own
III. Franchise

 

1. BUYING AN EXISTING BUSINESS

What questions should Iask if I am considering buying an existing business?

Why are they selling a business that is in good shape?

Is it a lemon?


Good reasons to buy an existing business:

  1. Retirement -person may have run business all life now wants to retire- no family to take over or none interested
    -owner may have taken someone under his /her wing --(advantage is person knows business
  2. Illness, accident or death
    -could be to sole proprietor or one partner
  3. Other Interests
    -owner could have more than one business and may decide to concentrate on one
  4. Disagreement between partners
    -serious or longstanding unresolvable problem
    -one may try to buy out other or sell to others

Some reasons for Not buying an existing Business

  1. Potential Problems
    Is there a problem that is not public knowledge?
    Is a competitor planning to open?
    Is there some new municipal zoning law?
    Are there new federal regulations ?

    Has the business lost a good customer?
    example: Canada Games lost Consumers Distributors-- also were stuck with Pogs that sold at a loss
  2. Internal Difficulties
    Does the company have a new product or service that has serious problems? --this problem would not show in financial records
    Are key managers or those with specific expertise planning to leave?
  3. TECHNOLOGICAL ADVANCES
    Are there new alternative materials/products that a competitor has?
    -could be high tech but not necessarily
    examples: beta vs VHS, Eight Track tapes, plastic bottles vs glass
  4. SPECIAL RELATIONSHIP WITH CUSTOMER/ SPECIAL TALENT OF OWNER
    Does the business owner have a unique relationship with customer that can't be duplicated?"
    Does owner have special “knack" that can't be duplicated?

    example: someone in service who can troubleshoot on spot

    Other Considerations
    What is good? What is bad?
    -customer goodwill, good customers, good reputation, efficient work force, good credit rating, cooperative suppliers
    -overvalued inventory with obsolete or unsalable merchandise


BUYING INTO A EXISTING PARTNERSHIP

FINANCIAL EVALUATIONS

  1. GET ACCOUNTANT TO GO OVER BOOKS TO CHECK FOR RELIABLE FIGURES AND TO ENSURE TREND OF SALES AND PROFITS IS UPWARDS
  2. Check trade journals, and contact associations specific to industry
  3. Check with local bank managers, municipal officials
  4. Spend some time at different intervals without notice to get feel
    What is atmosphere like? Are customers being served?
    Cold call company to see how service is?

BUSINESS VALUATION



II STARING YOUR OWN BUSINESS

KNOWING YOUR MARKET

Research


III THE FRANCHISE OPTION

ESTABLISHED FRANCHISE

Costs:

1. fee and
2. buy unit and equipment

(this may be over period of time)
3. pay monthly share of advertising costs
(this is percentage of sales and in addition to monthly royalty fee or share of profit)-could be 10% of sales

ESTABLISHED FRANCHISE

POSITIVE OF FRANCHISE
NEGATIVE OF FRANCHISE
Proven Winner Little Freedom
Little Risk Large Investment
Good Support System:training, site selection, suppiles,advertising

Regulations-Only regulation in Alberta
Termination Policy favours franchisor

lower cost buying do to large scale may end up paying higher due to theri mark-up



NEWER/RISKIER FRANCHISES

POSITIVE OF NEW FRANCHISE
NEGATIVE OF NEW FRANCHISE
may offer more favourable deal -lower cost great deal riskier, not proven
more leeway in operation -like own business -not as much support
franchiser will take smaller royalty, ad percentage Regulations-Only regulation in Alberta
   



What to watch for:

Buyer beware
Jacques Lasnier, director of International Franchising and Business Network Show 1996 says,"The pot of gold at the end of the rainbow is gone; there have been too many scams, too much greed, and too many franchises burned-it's growing in a more disciplined way not the Wild West"

Main Complaint:
1. lack of regulation in Canada-only in Alberta is there a degree of protection Franchising still attractive because survival rates higher than for independent start-up


HOME-BASED BUSINESS

Why so many?

HOME-BASED ADVANTAGES
HOME-BASED DISADVANTAGES
1. Initial cost low 1. Isolation from peers and associates
2. can reduce income tax by charging home expenses 2. confusion between personal and business life
3. can claim business clothes, eating out, travel 3. May lead to unprofessional and unbusinesslike attitude
4. Saves time no travel to office  
5. Maybe a better quality of life  

6. Can still look after family responsibilities

 

 



I wanna go HOME

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copyright 2001 Karen E.Hamilton