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Swiss-AIT-Vietnam Management Development Programme 1-11

Swiss-AIT-Vietnam Management Development Programme 1-11

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SAV

SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

Problems faced by Small Scale Enterprises
Small scale enterprises quite often face distinctive problems. These are: 1. Difficulty in obtaining credit from commercial banks because of their general inability to provide security. 2. 3. Inability to offer liberal credit terms in the sale of their products. Absence of management expertise. Often management is by one person who performs a number of functions usually with no formal training. 4. 5. Difficulty in competing with imported products due to high production costs. Difficulty with competition from other local entrepreneurs in the same line of business competing for the limited local market. 6. Difficulty in obtaining industrial land in towns and cities. The shortage of industrial land is giving rise to more and more backyard operations. 7. 8. 9. Under capitalisation. Difficulty in identifying appropriate technology and technical assistance. The manner in which both the needs of the economy and linkage with existing industry can best be served. 10. Bureaucratic red tape and regulations.

SAV6/SAV22-SBM/H1-PSME/Nair/Sept99

SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

Summary of the role of Small Firms in the Economy
1. The small firm provides a productive outlet for the energies of that large group of enterprising and independent people who set great store by economic independence and many of whom are antipathetic or less suited to employment in any organisation but who have much to contribute to the vitality of the economy. 2. In industries where the optimum size of the production unit or the sales outlet is small, often the most efficient ( as measured, say by profitability ) of business organisation is a small firm. For this reason many important trades and industries consist mainly of small firms. 3. Small firms add greatly to the variety of products and services offered to the consumer because they can flourish in a limited or specified market which it would not be worthwhile or economic for a large firm to enter. 4. Many small firms act as specialist suppliers to large companies of parts, sub-assemblies, components or services ( contracted-out labour, maintenance, etc. ) produced often at a lower cost than the large companies could achieve. Small firms provide an important part of the economic infrastructure upon which the economy depends. 5. In an economy in which even larger multi-product firms are emerging, small firms provide competition, both actual and potential, and provide some check on monopoly profits and on the inefficiency which monopoly might breed. In this way they contribute to the efficient working of the economic system as a whole. Furthermore, big business knows that its chance to continue under private auspices rest heavily upon the presence of many virile, healthy small businesses, and so will aid their survival.

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6.

Small manufacturing firms, in spite of their relatively low expenditure on research and development in comparison to many sectors as a whole, are an important role in innovation because of the generally lower capital costs of development work.

7. 8.

The small firm sector is a breeding ground for new industries. Small firms provide a means of entry into business for new entrepreneurial talent and the seed-bed from which new large companies can grow (although their numbers will be very small ) to challenge and stimulate the established leaders of industry.

9.

Small firms provide a means by which new resources, or resources which would otherwise lie dormant, can be brought into productive use and so increase output at a possibly marginal opportunity cost. At the same time, small firms also provide an outlet for investment goods and investible funds.

10.

In a period of economic depression many unemployed people may go into selfemployment ( and hence establish a new, small firm ) to tide themselves over until new employment opportunities develop.

11.

Small firms are important employers of skilled labour (e.g. engineering craftsmen) and many, as a result of their intensity, may help to maintain a skilled labour base in an area, or in an industry which largely routine semi and unskilled work is being provided in large companies.

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SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

COURSE TERM LECTURER

: SAV 22 SMALL BUSINESS MANAGEMENT/ ENTREPRENEURSHIP : 2/99 (September 1999) : Dr Godwin Nair

SAMPLE BUSINESS PLAN

SAV6/SAV22-SBM/H3-Sample Business Plan/Nair/Sept99

A Business Plan for the Roaring '20s Museum

436 West Ontario Street Chicago, Illinois 60610 (312) 555-5900

INTRODUCTION
This Appendix presents the complete business plan for the Roaring '20s Museum, created by Michael Y Graham. This plan was the international awardwitining business plan at the University of Miami International Business Plan Competition. The business plan represents the hard work, vision, and perseverance of an entrepreneur. Michael Yore Graham personified a college professor's dream come true: a student dedicated to doing whatever it takes to research, write, present, and defend an award-winning business plan, the Roaring'20s Museum. As you read Mike's plan, try to resist concluding that he must be a magician, creating the plan out of smoke and mirrors. The plan's critical mass is Mike's vision, energy, and commitment blended with his resourcefulness and willingness to adjust preconceived notions to the realities of business.

This plan was prepared and written by Michael Yore Graham, 345 Cleveland Avenue, Libertyville, Illinois 60048. Reprinted with permission.

SAV6/SAV22-SBM/H3-Sample Business Plan/Nair/Sept99

SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

EVALUATING YOUR IDEAS
It is often difficult to figure out how to research your idea, especially if you have never been in business for yourself. You will need decide if your idea has profit potential. 1. Use the following twenty steps as a guide to help you determine if your idea is worthwhile. Create a profile of your paying customer. List and describe the features/benefits of your product or service. 2. Define the main geographic area you intend to sell to during your first year. 3. What competitors are selling to this geographic area? 4. What price do these competitors charge? 5. Estimate what price you can charge, yet still remain competitive. 6. Why would your customers buy from you instead of your competition? 7. List and briefly describe trends in your market or industry. 8. What is the growth potential of the market? 9. How are you going to let your customer know you exist? 10. Estimate Sales for the first year. 11. List any government approvals necessary to launch your idea. 12. Briefly describe your manufacturing or purchasing process. 13. Briefly describe your fulfillment process. Estimate the capacity of your operation in the first year. 14. Make a list your potential suppliers 15. Make a list of the resources you will require to start your business. 16. Determine what resources you will finance, lease or rent. 17. List your financial strengths and weaknesses. 18. Prepare a monthly cash flow forecast for your first year of operation.

1. Create a profile of your paying customer. Your customers might be consumers or retail stores, wholesalers or manufacturers, government or other institutions. List as many points as you can about who you think will buy your product. If

SAV6/SAV22-SBM/H3-Sample Business Plan/Nair/Sept99

you are selling to a consumer market, try collecting magazine pictures of what you think your customer looks like. List their age, gender, marital status, income and try to describe their lifestyle. If you expect to sell to another business or organization, estimate what industries they are in, what kind of company, how long they have been in business, how many employees, their annual sales, what department would be interested in your offer, who their customers are and anything else you can identify. 2. List and describe the features of your product or service. 3. State how these features will benefit your customer. Defining the features of your idea and determine what these features do for your customer. You will create a list of the selling points that you can use in your advertising, your brochures, and in your sales presentation. This will help you establish why your customer might buy your product or service. Define the main geographic area you intend to sell to during your first year.

Are selling to your neighbourhood? Your community? HochiMinh City? Vietnam? By defining where you are going to sell in your first year you immediately put yourself in focus. You will likely be able to figure out how many potential customers are located in this area. If you are selling to a large geographic area, you will probably need a good deal of money, marketing and resources. Defining this area makes it much easier to figure out what your needs are going to be.
4. What competitors are selling to this geographic area? Once you determine who and where your customers are, you must determine whom you have to share them with. Find out if similar products are carried in retail outlets, similar companies advertise in the yellow pages or are listed in industry directories. 5. What price do these competitors charge? Establish what your competitors charge and list selling points of their product or service. Try to find the industries wholesale and retail prices. 6. Estimate what price you can charge, yet still remain competitive. Determining how competitive you can be is a big step toward how feasible your idea is. If your product is superior to your competition and your market is not very price sensitive then you may be able to charge considerably more than your competition. If you are selling to retailers or wholesalers, you will have to leave enough room for others to mark your products up . 7. Why would your customers buy from you instead of your competition? What is unique about your offer that would benefit your customer? There may be something about your product, your price, the friendliness and speed of your service, your hours of operation, your level of quality, the skills of your employees or other aspect of your business. 8. List and briefly describe trends in your market or industry. Knowing trends in your market or industry will help you determine where it's going and how your business can take advantage. Check business and industry/trade magazines for recent articles. Some libraries have a "business periodicals index" to help you find these articles. 9. What is the growth potential of the market? Is your industry or market growing or declining? Are trends or fads new, peaking or declining? Generally, you will be more successful being part of a growing market. Check business and industry/trade magazines for recent articles.

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10. How are you going to let your customer know you exist? So now you know who your customer is, where they are and why they will buy your product. How are you going to communicate your offer to them? Will you rely on having a good location? Will you use advertising? Sales calls? Direct marketing? Yellow pages? You may find it helpful to examine the Business Promotion Idea List. 11. Estimate Sales for the first year. Base your estimates on the size of your market, level of competition, your price, your plans for promotion and trends in your industry. Create a pessimistic, an optimistic, and a middle of the road forecast. 12. List any government approvals necessary to launch your idea. There may be some extensive or expensive regulations involved with your type of business. The Information Sources for Small Business Directory can assist you with determining provincial regulations affecting your business. 13. Briefly describe your manufacturing or purchasing process. State how you will make or acquire the goods you plan to sell. Use your sales forecast to help you plan this part of your operation. Think about potential growth in future years. 14. Briefly describe your fulfillment process. How does your customer get their order and how do you get paid. 15. Estimate the capacity of your operation in the first year. How big will your operation be? What is the limit of what you can produce, stock, service and sell. Can you meet your sales forecasts? Have you taken future growth into consideration? 16. Make a list your potential suppliers Your concept may rely heavily on the reliability of your raw material suppliers and/or your subcontractors. How dependent will you be? Figure out who your suppliers will likely be and try to find back-up suppliers. 17. Make a list of the resources you will require to start your business. List the employees, floor space, leasehold improvements, equipment, vehicles, inventory, supplies and services you will require to open your business. Estimate the costs of each item on your list. You will need this list to determine your start up costs . 18. Determine what resources you will finance, lease or rent. You will probably not pay for large purchases outright but will instead lease, rent or finance these items. You will need to estimate your monthly payments to help you prepare a cash flow worksheet. 19. List your financial strengths and weaknesses. How much of your own money do you have for this business? what assets can you use as collateral to secure a loan? Do you already own the vehicles, computer equipment or tools needed to start your business? Do you have family, friends or others who are prepared to invest in your business? Do you have a strong personal credit rating? 20. Prepare a monthly cash flow forecast for your first year of operation.

SAV6/SAV22-SBM/H3-Sample Business Plan/Nair/Sept99

SAV6/SAV22-SBM/H3-Sample Business Plan/Nair/Sept99

SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

BUSINESS PROMOTION IDEA LIST
• • • • • • • • • • • • • • • • • • • • • Advertise in the classified advertising section of your community newspaper. Advertise in the Yellow Pages. Advertise on a grocery buggy. Approach your prospective customers over the phone. Approach your prospective customers in person. Approach your prospective customers through the mail. Be a guest speaker at seminars and present on your area of expertise. Be a guest speaker on radio talk shows. Build and maintain a customer mailing and contact list on database software. Build your image with well designed letterhead and business cards. Design a brochure that best explains the benefits of your services. Design a mail order campaign. Design a point of purchase display for your product. Design an image building logo for your company. Design and distribute a quarterly newsletter or an industry update announcement. Design and distribute company calendars, mugs, pens, note pads, or other advertising specialties displaying your company name and logo. Design and distribute a free "how to do it" hand-out related to your industry (e.g. Tips for conserving energy in your home). Design buttons, decals and bumper stickers or balloons with your company name, logo or slogan. Design T-shirts displaying your company name and logo. Explore cross promotion with a non-competing company selling to your target market. Explore the costs of advertising in newspapers, magazines, on radio, television, billboards, bus shelters and benches.

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• • • • • • • • • • • • • • • • • • • • • • •

Explore ways to share your advertising costs using cooperative advertising. Follow up customer purchases with a thank you letter. Follow up customer purchases with Tet or birthday cards. Have your company profiled in a magazine or newspaper that is read by prospective customers. Hire an advertising agency or public relations firm. Hold a promotional contest. Include promotional material with your invoices. Look for prospective customers at trade shows related to your industry. Look for prospective customers in associations related to your industry. Look for prospective customers at seminars related to your industry. Look for prospective customers in magazines and newspapers related to your industry. Package your brochure, price lists and letter in a folder for your customers. Place a sidewalk sign outside your store or office. Place flyers on bulletin boards and car windshields. Place promotional notes on your envelopes, mailing labels. Place signs or paint logos on your company vehicle(s). Prepare a corporate video. Prepare a list of product features and benefits to help you plan your advertising and promotional campaigns. Provide free samples of your product or service. Provide public tours of your operation. Sponsor a charity event. Sponsor an amateur sports team. Sponsor a cultural event through a community arts organisation.

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SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

FORMS OF BUSINESS STRUCTURES
A business structure is the legal form of ownership of a business. You must know about these forms of ownership, because they affect your business survival. Let’s imagine that you are happily working along, thinking your business is doing well. Your partner is buying all sorts of useless equipment costing so much that the partnership goes broke. What happens to you when the partnership is wound. You can’t say, “I didn’t know about legal aspects of partnership”. Ignorance is no defense at all under the law. Make it your business to know about business. influence, amongst other things: • • • Your liability for debts Legal procedures for dealing with other people How you can sell your business and at what price The structural form of your business will

There are three basic structures commonly used by small business: • • • Sole proprietor – where only one person is the owner, trading in his/her own right. Partnership – where two or more people are the owners Company – shareholders are the owners of the company which is run by directors for the shareholders. It’s up to you which form you choose, but you would be well advised to discuss the choices with an expert like an accountant or solicitor.

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WHAT FACTORS INFLUENCE THE FORM OF OWNERSHIP Choosing the type of ownership for your business requires that you examine many factors to determine which type will best suit your needs. You should examine such factors as – • • • • • • start-up costs the amount of control you desire the amount of personal risk you are willing to assume need for assistance in particular areas need for continuity need of flexibility

Table 1 identifies some of these factors as advantages and disadvantages to the particular type of ownership in which you may be interested. ADVANTAGES/DISADVANTAGES OF TYPES OF OWNERSHIP Forms of Ownership Sole Proprietorship 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5. 6. 7. Advantages Low star-up costs Greatest freedom from regulation Owner in direct control Minimal working capital requirements Tax advantage to small owner All profits to owner Ease of formation Low start-up costs Additional sources of venture capital Broader management base Possible tax advantage Limited outside regulation Limited liability Specialized management Transferable ownership Continuous existence Legal entity Possible tax advantages Ease of raising capitall Disadvantages 1. Unlimited liability 2. Lack of continuity 3. Difficulty in raising capital

Partnership

1. 2. 3. 4.

Unlimited liability Lack of continuity Divided authority Difficulty in raising additional capital 5. Difficulty in finding suitable partners 1. Close regulation 2. Most expensive form to organize 3. Charter restriction 4. Extensive recordkeeping 5. Double taxation

Company

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SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

WAYS TO ENTER SMALL BUSINESS
The entrepreneur has many decisions to make once he or she decides to become engaged in a small business venture. One of the first and one of the most important - decisions is whether to start a new business or buy an existing business. The answer to this question may vary in each case, and there are many factors to consider. The following is a comparison between “Starting a New Business” and “Buying an Existing Business”.

Starting a New Business
• • • • • • • Freedom of choice location Set your own 'style' of business no existing restrictions of image and policy Develop at your own rate, especially when capital is limited. Slow start-up time Initial outlay of money before Higher risk and uncertainty Financing can be more difficult • • • • • • • •

Buying an Existing Business
Location may be good or bad - analyze Lines of credit and supply Established with customers and suppliers; vendor and employees can pass on experience Purchasing total business must analyze all aspects of business; goodwill charge In business right away Immediate cash sales to operative Established clientele Proven business history Financing easier when based on past performance and security

Various Methods of Evaluation With purchase of a business, the purchaser gets its assets. The value of these assets can be calculated in at least four ways, namely: 1. 2. 3. Book Value - the balance sheet figure for assets, which gives the price paid for them minus depreciation. Replacement Value - the cost of buying new or equivalent item to replace existing assets Liquidation Value - the value of assets if they were sold at auction

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4.

Appraised Value - the value of an asset according to an objective assessment from someone familiar with the market. Because this price takes into account both the seller's side and the buyer's, it typically is somewhere between the replacement value (which can be above the original price due to inflationary pressures) and the liquidation value.

To illustrate the differences between the four methods, we will use the purchase of a small automobile rental agency. Company accounting records show the book value of the cars to be $30, 000 (five cars, each worth $6,000). The cars are each 2 years old, and since they have a useful life of 4 years, they are each worth one-half of their original cost of $12,000, To replace the fleet of cars, we find we will have to spend $8,000 each. The replacement value of the assets, then, is $40,000. As the next part of our investigation, we determine the liquidation value. If we decided after buying the business that it was a mistake and that we have to sell out for whatever we can get, we would find the lowest price prevails. Each car is worth only $5,000, so the assets would bring only $25,000. Finally, the appraised value is used, which in this case is $7,000 per car, giving a total of $35,000. Which of the four is best? It is seldom the book value; this is an accounting entry and only rarely matches actual value. The replacement value is useful for the prospective buyer who has decided definitely to go into the business being considered. It is necessary to buy the business with its assets, or find them elsewhere. The liquidation value provides the best data for a "worst case" scenario. That is, an entrepreneur can take some comfort in being able to salvage this amount from the business if everything turns sour. Of course, the liquidation value figure changes, so the $25,000 figure in our example will decrease steadily over time. The appraised value is the most useful figure in negotiations between a buyer and seller who are both knowledgeable and interested in completing the deal.

Determining the Price of a Business Step 1 Determine the adjusted tangible net worth of the business. This is the total value of the firm's assets, using the appraised value, minus its debts. For our car rental firm, which has $5,000 in debts, this is $35,000 $5,000 or $30,000. Step 2 Estimate how much the buyer could earn annually with an amount equal to the value of the tangible net worth (from step 1), invested elsewhere at a level of risk similar to that of the business being considered. In addition to risk, this figure will reflect the current rate of interest. Let's use 10 percent here; that gives us $3,000. Step 3 Add the normal salary for the owner-operator. That is, the income that the individual could be expected to earn elsewhere. We will estimate $20,000. Step 4 Determine the average annual net earnings of the business over the past few years. This figure is before income taxes and the owner's salary have been subtracted. Our real interest is in the likely level of earnings for the next few years, so trends in past earnings are important. The car rental firm averaged annual net earnings of $30,000.

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Step 5 Subtract the buyer's investment's earning power (step 2) and the owner-operator salary (step 3) from the business's average annual net earnings (step 4). This is the extra earning power of the business ($30,000 - $3,000 - $20,000), $7,000. Step 6 Multiply the extra earning power by what is called the it years of profit" figure. This years of profit figure is intended to reflect the "uniqueness" of the business. How difficult and risky would it be to establish such a business? How long would it take to do so? How much goodwill has the business -established? A well-established business might warrant using a 5 here; a company that has just started might suggest a 1. Here we will use a 2, giving us, for intangibles, $14,000. Step 7 To arrive at the final price., we add the firm's adjusted tangible net worth and the value of its intangibles (steps 1 and 6). This gives us $30,000 and $14,000 for a total price of $44,000.

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Example
1. Adjusted value of tangible net worthy (assets less liabilities). 2. Earning power at 10% of an amount equal to the adjusted tangible net worth, if invested in a comparable risk business. 3. Reasonable salary for owner-operator in the business. 4. Net earnings of the business over recent years 5. Extra earning power of the business (line 4 minus lines 2 and 3). 6. Value of intangibles-using three-year profit figure for moderately well-established firm (3 times line 5). 7. Final price (lines 1 and 6).

Business A
$100,000 10,000

Business B
$100,000 10,000

18,000 30,000 2,000 6,000 $106,000

18,000 23,350 (4,650) None $100,000 (or less)

In example A, the seller receives a value for goodwill because the business is moderately well established and earning more than the buyer could earn elsewhere with similar risks and effort. Within three years, the buyer should have recovered the amount paid for goodwill in this example. In example B, the seller receives no value for goodwill because the business, even though it may have existed for a considerable time, is not earning as much as the buyer could through outside investment and effort. In fact, the buyer may feel that even an investment of $100,000 the current appraised value of net assets- is too much because it cannot earn sufficient return.

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SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

FRANCHISING
To understand fully what is meant by a franchise, it can be helpful to know the major differences between buying a franchise and starting your own business. Buying a franchise Operational training based usually provided by franchisor. Right to use a known trade name or trademark. Franchise operation completely identified with franchisor. Able to sell a proven service with established public acceptance. Buying a package , so ready to start full operations sooner. Less working capital may be required because of tighter controls and franchisor's merchandise, supply. Profit and loss forecasts may be more accurate as based on proven similar operations. Greater chance of initial success. Starting your own business Management ability on your own expertise Time required to establish name. But more identification of owner to business. Time required to product or establish name, Products, and/or service May have to start slowly. Longer time to realize full potential. Risk of mistakes and longer time to start can mean greater financing needs. Terms may be terms of difficult to get with suppliers. Risk of errors in estimating expenses, sales, and profits especially for an unproven venture. Greater chance of failure due to time required for establishment and possibility of mistakes especially remarketing and planning.

WHAT TO EXAMINE WHEN BUYING A FRANCHISE What do you check into when buying a franchise? An easy answer to that question is: everything. While it is impossible to list everything that you must investigate when contemplating the purchase of a franchise, we do list some main points. From these points, you should be able to develop other questions to ask. The franchisor

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Find out who the principals are and what their business background is. Is their business history connected with the product or service they are franchising? The answer should be yes if you are depending on them for expertise in running your franchise. Have there been, or are there any, civil or criminal actions against them? Are the franchisors successful business people in their own rights? Is the franchiser a multinational company, a national company, or a comparatively small enterprise? The franchise Exactly what does the franchiser own or control (trade name, trademark, product, process and when will this ownership or control expire? How well-known is the franchise operation? How long has the franchise operation been in existence? Is it a growing franchise, yet well established? Find out the number of franchise already established and obtain the names and addresses of the franchisees. This is invaluable in checking for candid facts. You should definitely evaluate at least one of the established franchises to determine for yourself how successful the venture is. Have any franchisees failed and, if so, why? Sales and profit Obtain an estimate of the amount of sales that the franchise will generate. These estimated figures should be not only for your proposed first year of operation but for as many years ahead as is realistically possible. The estimates that you obtain should be checked with the actual from existing franchises. It is important that you undertake a market study of your own so as to assess your share of the market. It may well be that the franchisor's estimate is overgenerous or does not consider the time factor necessary for you to reach the potential of full earnings. Location and premises Who decides the location of the franchise - you or the franchiser? Will the franchiser help you find a location in your territory? Make sure you are satisfied with the location for it must be the most suitable one, from a market point of view, for you. Do your premises have to meet certain standards such as square footage or street frontage? Can you adapt existing premises to house your franchise operation or must you operate in new premises? If premises must have a standard appearance to conform to the franchise image, do you know who pays for this? trust you construct your own building (if new premises required) or does the franchiser do this and you only lease? If you lease, is it specified for how long and can you sublease or move your franchise operations to another location within your territory? Find out if it is advantageous to set the term of your lease to the term of your franchise agreement. Equipment, fixtures, layout Check if the franchise agreement calls for specific equipment and fixtures. In many cases, this is required so that each individual franchise operation presents a uniform appearance. If this is true for your operation, find out if you must buy the items from a specified source (such as the franchiser) or can shop around for the best deal. If you must buy from a named source, find out if you can arrange terms. If leasing the equipment and fixtures from the franchisor, make sure you understand the terms. What about warranties and repairs to equipment and fixtures? The layout of your operations may also be specified. Verify what input you can have or what adaptations, if any, you can make.

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Protection of territory Has your territory been defined? And is it clearly defined even to the point of being marked on a map? For how long a period of time is this territory exclusively yours? What is the protection that no other franchise will be sold in your territory for so many years or, that you have first refusal on any new franchise in your territory? Make sure that any offer for first refusal will not come too soon before you have benefited fully from your first franchise operation. Also, check that the contract does not specify that, in order to retain exclusive territory, you must buy more franchise operations. Can your territory be reduced at any time by the franchiser? Can you expand your territory? Purchase costs You must know what all the purchase costs are. What is the total franchise fee and what are you really buying? Does the "package" cover just the right to use a name or trademark, or are you also buying initial inventory, equipment, and fixtures? Is the franchise fee a one-time payment or must you pay again when renewing your contract? Are there service charges or royalties specified such as a percentage of gross sales? Are terms available with the franchisor? Can the franchisor help you arrange financing? Who pays the legal fees? Who pays for permits, licences, and insurance? Are there penalty clauses? If you are leasing the premises or equipment from the franchisor, do you have to make advance payments of leave a damage deposit? if buying equipment and fixtures, when and how do you pay for them? Training Find out if the franchisor will give you training. If the answer is yes, find out who pays for it. The training may be a “once only" affair or it may consist of an initial indoctrination followed by refresher sessions. What does the training consist of - management skills, product or service skills, operational skills, or a combination of all aspects? Are there training courses available for your employees and, if so, who pays for them? Can you telephone the franchisor for quick advice? Prices and sales Do you have the right to adjust the prices or are they set by the franchisor? Can you offer specials on your own? Are there sales quotas and are they realistic? What happened if you do not meet minimum quotas? Products and supplies Is it specified in the contract what products you must carry? Can you stock product lines other than the franchisor's? Are the sources specified for your purchases of products and supplies or can you shop around for a better price? What are the payment terms? Is there a chance that your supplier could run short? Are there minimums specified for order size? Business controls

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Usually, franchisors will spell out how a franchisee will operate his or her franchise. This may be looked upon as a curtailment of freedom. Nevertheless, it must be recognized that this is the way the franchisor obtains uniform standards of image from all his or her franchises. These controls usually include advertising policies, insurance policies with the franchisor as beneficiary, hours and conduct of business, accounting procedures, reports from the franchisee to the franchisor, and even access to the franchisee's records and bank. Often, business controls can mean that the franchisee must run the business in person and cannot designate a manager. The contract may also state that the franchisor has the final word in any disagreement between the franchisee and the franchisor. The franchise contract You must understand every clause of the contract. You must make sure that all obligations and freedoms are specified in the agreement. Check, especially, clauses pertaining to termination, bankruptcy, transfer, renewal, and sale of the franchise. What are the conditions under which the franchisor has the right to revoke the franchise agreement? Note: Two important people who must help you when examining the purchase of a franchise are your accountant and your lawyer. Have your accountant prepare a forecast of your franchise operation and assess your return on investment. Remember, you are not just purchasing a franchise, you are also going to operate one. Working capital is a definite requirement.What will your lawyer do? He or she will explain every clause of the contract to you and, if necessary, will write in additional clauses to be negotiated with the franchisor, and will be there to protect your rights.

SUMMARY OF SOME IMPORTANT POINTS IN FRANCHISING What should you expect from the Franchisor in support of your business? 1 . Training • • • 2 . Field support 3. Promotional support • • • Specialized skills Marketing Book-keeping, and recording From “troubIe shooter” to assisting you in implementing the 'blueprint' operation. NationaI/local advertising

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21

• 4. 5. 6. 7. Market research Administrative support Bulk purchasing Initial support • • • • • • • • •

Stationery PR material To help identify demands and new trends. Accountancy and legal services Specially negotiated price for Franchisees Finding suitable premises Preparation of plans, planning applications Obtaining finance Purchasing stock/equipment Getting the business off the ground

Remember you are paying for many of these services in the franchise fee - check carefully what is included and what rights you have if promises of support are not forthcoming.

SAV6/SAV22-SBM/H8-Franchising/Nair/Sept99

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SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

COURSE TERM LECTURER

: SAV 22 SMALL BUSINESS MANAGEMENT/ ENTREPRENEURSHIP : 2/99 (September 1999) : Dr Godwin Nair

HANDOUT 9 ARTICLES ON FINANCE AND MARKETING

1. Banks and Loans, Fiji Time, 1993 2. Knowing the Rules, Fiji Time, 1994 3. Know your customer, Fiji Time, 1994 4. Unique sell: What you’re good at – and what your rivals don’t have, Fiji Time, 1989

SAV6/SAV22-SBM/H9-F&M/Nair/Sept99

SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

COURSE TERM LECTURER

: SAV 22 SMALL BUSINESS MANAGEMENT/ ENTREPRENEURSHIP : 2/99 (September 1999) : Dr Godwin Nair

HANDOUT 10 ARTICLES ON SMALL AND MEDIUM ENTERPRISES IN VIETNAM
1. SMEs to Play a Larger Role in Private Sector, Vietnam Investment Review, 26 Oct – 01 Nov 1998. 2. SMEs Stand to Benefit from Proposed Credit Guarantee Fund, Vietnam News, 04 Oct 1999. 3. SMEs Need Work Space, Capital and Policy Help, Vietnam News, 25 Sep, 1999 4. SMEs “Need Advice”, but Pay no Heed to Advisors, Vietnam News, 13 Oct 1999. 5. Consumers Start to Know They Have Rights: Watchdog, Vietnam News, 11 Oct 1999

SAV6/SAV22-SBM/H10-SMEs in Vietnam/Nair/Sept99

SAV
SDC

Swiss-AIT-Vietnam Management Development Programme

c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: SAV@netnam2.org.vn /swissait@hotmail.com

COURSE TERM

: SAV 22 SMALL BUSINESS MANAGEMENT/ENTREPRENEURSHIP : 2/99 (September 1999)

LECTURER : Dr Godwin Nair ___________________________________________________________________________ FINAL EXAM BRIEFING

Briefing The final exam paper consists of two parts: Part 1 (Closed Book) – 70.5 marks (70.5%) Short Answer and Application Questions (SAAQ), and Multiple Choice Questions (MCQ) Part 2 (Open Book) – 29.5 marks (29.5%) Case Study – 3 pages + Short Questions

Breakdown of Questions Part 1 – consists of 2 sections Section A – 15 SAAQ x 2 marks each = 30 marks (30%) Section B – 27 MCQ x 1.5 marks each = 40.5 marks (40.5%) Part 2 – consists of a Case Study Five (5) short questions (about one page answer for each question) Note: Marks for each question is listed after the question Time Allocation for Parts 1 and 2 and Instructions Part 1 – 2 Hours Part 2 – 1 Hour Reading instructions and checking through exam paper – 10 Minutes 70.5%

SAV6/SAV22-SBM/H11-Final Exam Briefing/Nair/Sept99

25

Areas covered for exam 1. Lecture notes and OHTs from weeks 7 to 11 (ie. Lectures 8, 9, 10 & 11) 2. Readings 10, 11, 12, 13, 14 & 15 3. Handouts – H 7 & H 8 4. Tutorial Activity – 6

Additional Notes 1. Read the instructions carefully at the beginning of each part and section. 2. Read the questions and its parts very carefully.

ALL THE VERY BEST IN YOUR EXAM Thank you !

SAV6/SAV22-SBM/H11-Final Exam Briefing/Nair/Sept99

26

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