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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Small Business Entry: Paths to
Full-Time Entrepreneurship
Chapter 6
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objectives
LO1 Describe five ways that people get into small business management
LO2 Compare the rewards with the pitfalls of starting a small business
LO3 Compare the opportunities with the pitfalls of purchasing an existing business
LO4 Explain four methods for purchasing an existing business
6-2
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objectives
LO5 Compare the advantages with the disadvantages of buying a franchise
LO6 Explain the issues of inheriting a family-owned business
LO7 Describe how hired managers become owners of a small business
6-3
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The Five Paths to Business Ownership
Franchise A legal agreement that allows a business to be
operated using the name and business procedures of another firm.
6-4
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The Five Paths to Business Ownership
Start-up A new business that
is started from scratch.
Buyout The purchase of
substantially all of an existing business.
6-5
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Starting a New Business
Advantages of start-upsBegin with a clean slateUse the most up-to-date technologiesProvide new, unique products or servicesCan be kept small deliberately to limit the
magnitude of possible losses
6-6
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Starting a New Business
Disadvantages of start-upsNo initial name recognitionRequire significant timeVery difficult to financeCannot easily gain revolving creditMay not have experienced managers and
workers
6-7
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Increasing the Odds of Start-Up Success
Spin-off A business that is
created by separating part of an operating business into a separate entity.
6-8
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Buying an Existing Business
Advantages of purchasing an existing business
Established customersBusiness processes are already in placeOften requires less cash outlay
6-9
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Buying an Existing Business
Disadvantages of purchasing an existing business
Finding a successful business for sale that is appropriate for you is difficult
Existing employees may resist changeReputation may be a hindranceFacilities and equipment may be obsolete
6-10
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Due Diligence
Due diligence process of
investigating a business to determine its value
Caveat emptor Latin: let the buyer
beware
6-11
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Due Diligence
Intangibles Assets, such as
patents or trademarks, and liabilities, such as accounts payable, that have no physical existence.
6-12
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Determining the Value of the Business
Net realizable value The amount for
which an asset will sell, less the costs of selling.
Replacement value The cost to acquire
an essentially identical asset.
6-13
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Structuring the Deal
Takeover Seizing of control of
a business by purchasing its stock to be able to select the board of directors.
6-14
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Franchising A Business
Trade name franchising agreement that provides to the franchisee only
the rights to use the franchisor's trade name and/or trademarks
Product distribution franchising agreement that provides specific brand name
products which are resold by the franchisee in a specific territory
6-15