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Entrepreneurship Chapter 14 Accessing Resources
Entrepreneurship Chapter 14 Accessing Resources
Peters and
D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010.
Disadvantages of Franchising
Problems between the franchisor and franchisee are common.
Problems usually center on the franchisor not able to provide services and advertising.
The franchisor could be bought out by another company.
The franchisor may find it difficult in finding qualified franchisees.
Poor management despite training systems can reflect negatively on the entire franchise
system.
Types of Franchises
Good Health
Time Saving or Convenience.
Environmental Consciousness.
The Second Baby Boom.
INVESTING IN A FRANCHISE
Factors that should be addressed before making final decision;
1. Unproven vs. Proven franchise.
2. Financial Stability of Franchise.
How many franchises are in the organization?
How successful is each of the members of the franchise organization?
Are the profits of the franchise operation from selling franchises or from royalties
based on profits of franchises?
Does the franchisor have management expertise in production, finance and
marketing? (Background of Management Team)
3. Potential Market for new franchise still depends on the demographics and marketing
research.
4. Profit Potential for a New Franchise.
Joint Ventures
1. Two or more private sector companies combine to cut costs, share technology and
research.
2. Industry – University Agreements. Purpose is in doing research. Drawbacks;
A profit firms will want ownership of tangible assets such as patents, copyrights, etc.
The University will want to retain proprietary rights for potential financial returns and
professors wanting to publish research.
3. International Joint Ventures.
Increasing due to numerous advantages.
Share in earnings and growth.
Low cash requirement if the patent is capitalized upon.
Causes less of a drain on a company’s managerial resources.
ACQUISITIONS
This is the purchasing all or part of a company.
Advantages
3. Established business creates instant cash flow and expanded customer base.
4. Location is already familiar to customers.
5. Established marketing structure so you can concentrate on growth.
6. Cost can be lower than other methods of expansion.
5. Existing employees are great asset. They have the skills, customer relationships and can
re-assure everyone they know about the new ownership.
6. More opportunity to be creative because much of the start-up focus has been removed.
Disadvantages
1. Marginal Success record if the purchased business was having difficulty prior to sale.
2. Overconfidence in your ability could blind you to the limitations of the firm you are
purchasing.
3. Key employee loss. This is common when a business is sold that the key people also
leave searching for new opportunities.
4. Over evaluation. Paying to much for the firm will be difficult to over come.
Synergy
The whole is greater than the sum of its parts.
The acquisition must positively impact the bottom line.
Synergy could be the vehicle to move forward on all goals.
Lack of synergy can be one of the main reasons the acquisition fails.
LEVERAGED BUYOUTS
Purchasing an existing venture by an employee group.
The owner is usually in a position to retire.
The owner may want to divest the business of a subsidiary that no longer fits into his/her
plans.
The purchaser usually needs external funding due to lack of resources.
The price will depend on a reasonable asking price, the firm’s debt capacity and an
appropriate financial package.