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Ways to Start your Business

• Starting from scratch
• Buying a business
Ways to Start Your Business • Join in the family business
Developing a Business Concept
• Franchising

References: De Leon, F. et al. Mgt 238 notes

Starting from Scratch: Advantages

• Begins with a “clean slate”
• Provides the opportunity to use the most up-to-date technology
• Can provide new unique products or services
• Can be kept small deliberately to limit the magnitude of possible
Starting from Scratch losses

Ways to Start your Business

Starting from Scratch: Disadvantages

• Has no initial name recognition
• Will require a significant time to become established
• Usually cannot easily gain credit from suppliers and financial
institutions
• May not have experienced managers and workers
Buying an Existing Business
Ways to Start your Business

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Buying an Existing Business: Advantages Buying an Existing Business: Disadvantages

• Established customers • Finding a successful business
• Difficult to determine what a small business is worth
• Business process are already in place in existing, operating
• Existing managers and employees may resist change
business
• Reputation of business may be a hindrance to future success
• Less cash layout • Business may be declining due to changes in technology
• Facilities and equipment may be obsolete

Steps in Acquiring a Businesss Due Diligence

• Analyze your skills, abilities, and interests The process of investigating the details of a company
• Prepare a list of potential candidates that is for sale to determine the strengths, weaknesses,
• Investigate and evaluate opportunities, and threats facing it
• Explore financing options
• Ensure smooth transition

Franchise
• The word “franchise” comes from an old dialect of French
and means “privilege” or “freed”
• Many of the most popular franchises include KFC(1952),
McDonald’s (1955), and H & R Block (1958) started as early
Franchising a Business as the 1950’s
Ways to Start your Business

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Franchising
A form of business organization in which a firm that already has a
successful product or service (franchisor) licenses its trademark and
method of doing business to another business or individual (franchisee)
in exchange for a franchise fee and an ongoing royalty payment
(Pearson Education Inc., 2010)
Franchising
A franchise operation is a contractual relationship between the franchisor
and franchisee in which the franchisor offers or is obliged to maintain a
continuing interest in the business of the franchisee in such areas as know-
how and training, wherein the franchisee operates under a common trade
name, format and/or procedure owned or controlled by the franchisor, and
in which the franchisee has or will make a substantial capital investment in
his business from his own resources (International Franchise Association)

Types of Franchising Benefits of Buying a Franchise

• Trade name
• Management training and support
• Product distribution • Brand name appeal
• Standardized quality
• Business format • National advertising
• Financial assistance
• Proven products and business format
• Centralized buying power
• Site selection and territorial protection
• Greater chance of success

Drawbacks of Buying a Franchise Franchising Costs

• Initial franchise fee
• Franchise fees and ongoing royalties • Varies depending on the franchisor
• Strict adherence to standard operations • Capital requirements
• The costs vary but may include the cost of buying real estate, the cost of putting up a
• Restrictions on purchasing building, the purchase of inventory, and the cost of obtaining a business license
• Limited product line • Continuing royalty payment
• Contract terms and renewal • Typically 3% to 7% of monthly gross income
• Market saturation
• Less freedom

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The Costs Involved With Buying a Franchise

Franchising Costs Franchising Costs
3 of 3

Initial Costs to the Franchisee of a Sample of Franchise Organizations

• Advertising fees
• Franchisees are often required to pay into a national or regional advertising fund
• Other fees
• Training additional staff
• Providing management expertise when needed
• Providing computer assistance
• Providing a host of other items and support services

Franchise Ethics International Franchising

• The majority of franchisors and franchisees are highly ethical
• There are certain features of franchising, however, that makes it subject to ethical • International opportunities for franchising are becoming more
abuse. prevalent for the following reasons
• “Get rich quick” mentality • The markets for certain franchised products in the US have become saturated
• The false assumption that buying a franchise is a guarantee of business success (e.g. fastfood)
• Conflicts between franchisors and franchisees
• The trend towards globalization continues
• Steps to take before buying a franchise overseas:
• Consider the value of the franchise's name in the foreign country
• Get a good lawyer
• Determine whether the product or service is salable in the foreign country
• Find out how much training and support you will receive from the franchisor

KFC KFC

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8 Best Franchise Businesses You Can Start in

KFC
the Philippines
• Food cart • Bar and café
• Fast food • Bakery and food store
• Service-type • Education and training
• Water refilling station
• Personal care

Source: franchisemanila.com

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Family Business
• A business actively owned and/or managed by more than
one member of the same family
• If you own a family business, you probably worry even more
than the average entrepreneur about ensuring that your
Join in the Family Business company not only survives, but also thrives to nurture the
next generation.

Source: https://www.entrepreneur.com/encyclopedia/family-businesses

5 Unique Resources of Family Businesses 5 Unique Resources of Family Businesses

1. Human capital 4. Survivability capital
• ”inner circle”, skill sets of different family members are coordinated a a • Willingness to provide free labor or emergency loans so the venture
complementary cache of knowledge does not fail
2. Social capital 5. Lower costs of governance
• Networking and other external relationships • Ability to hold down the costs of governance; can minimize cost
3. Patient financial capital because employees and managers are related and trust each other
• In the form of both equity and debt financing from family members;
reduces the threat of liquidation

Issues in Family Businesses Issues in Family Businesses

• Family vs. non-family employees • Salaries and compensation

• Dealing with family conflicts on the job; limited opportunities for advancement and the • paying salaries to and dividing the profits among the family members who participate in the
special treatment sometimes accorded family members; resentment outsiders brought into firms
the firm • ensure that salaries are distributed fairly among family and non-family employees, business
leaders should match them to industry guidelines for each job description.
• Employment qualifications
• Succession
• trouble determining guidelines and qualifications for family members hoping to participate in
the business; face pressure to hire relatives or close friends who may lack the talent or skill to • determining who will take over leadership and/or ownership of the company when
the current generation retires or dies
make a useful contribution
• The key to avoiding conflicts about who will take over a business is having a well-
• A strict policy of only hiring people with legitimate qualifications to fill existing openings can defined plan in place.
help a company avoid such problems

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