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?
OF BUSINESS START-UP
an Existing Business
BUYING AN EXISTING BUSINESS
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?
to buy an existing business:
have run business all life now wants to retire- no family to take over or
-owner may have taken someone under his /her wing --(advantage is person
accident or death
-could be to sole proprietor or one partner
-owner could have more than one business and may decide to concentrate on
-serious or longstanding unresolvable problem
-one may try to buy out other or sell to others
Some reasons for Not
buying an existing Business
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
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?
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
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
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
partner may have good knowledge
examine financial background, growth potential and human relations
ACCOUNTANT TO GO OVER BOOKS TO CHECK FOR RELIABLE FIGURES AND TO ENSURE
TREND OF SALES AND PROFITS IS UPWARDS
trade journals, and contact associations specific to industry
with local bank managers, municipal officials
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?
II STARING YOUR OWN BUSINESS
because it's fresh, no old problems, if successful can say, "I did
customers or work force
is a long history of unsuccessful or exceedingly slow start- ups even if
you have a good product
example: zippers had 20-year battle v button
to find a way to create an impact not just smart advertising
have experience in area, you will know about market
experience, you will need to do more market research
expertise+ help of market research firm if you can afford it
your own primary and secondary research
-secondary research: trade magazines,
marketing mags: Marketing/Advertising Age/ Strategy/ Report on Business,
look at Statistics Canada, Nielson Financing
to start and operate in initial start-up (typical reason for failure is
in new start-up all figures are estimates
factors will determine depending on what research shows and if you are home-based
a knowledgeable accountant for objectivity
III THE FRANCHISE OPTION
- Can buy an existing unit
or new unit
- can buy into known quantity
(McDs,Starbucks, Tim Horton)or unknown
- if you want to run your
own show stay away from franchise
- if you don't feel you
can go it alone and have $ may be for you
- well-known may be out
of reach financially 1/2 million $$
- plans may have been made,
location picked, unit equipped and accounting system may be set before you
- strict operating rules
and manuals -little leeway
- ranchiser has successful
formula and doesn't want change
- important decisions will
be made at a distance
- franchiser takes big
cut of profit
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
POSITIVE OF FRANCHISE
NEGATIVE OF FRANCHISE
|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
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:
- careful examination of
financial estimates,forecasts and contract
- need accountant forecasts
will be overly optimistic
- consult a lawyer familiar
- franchise contracts have
many traps-make sure it is fair for you
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"
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
- estimates say 50% start
- Home-based business best
- if you are designer,
architect, engineer, commercial artist, translator,sales agent,financial planner,
- consultant on business,advertising,
human relations, communications or computer system
- small construction,catering,
Why so many?
- ease through high tech
- -many women setting up
|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