mgt 491 chapter 2 slides
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Chapter TwoSmall Business Opportunities:
Exploring the Options
Starting a New BusinessIdentifying the Opportunity
New-New approach: create a unique product or service
New-Old approach: adapt an existing conceptIf new-new or new-old need to conduct a
market analysis
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New-New Approach
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New-Old Approach
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Market AnalysisA market analysis is the key to a
successful venture.A market analysis is simply the
application of the scientific method to business problems.
There are 4 basic Steps:Gathering the factsOrganizing the factsAnalyzing the factsImplementing an action plan
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Analyzing DataIn the analysis stage, the prospective
owner-manager answers the question, “What does it all mean?”
There are many ways to analyze data. A few ways include:Analysis of sales and cost dataDetermine the number of competing firms in
the area and the total number of customersConsumer surveys
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The Action PlanThe action plan attempts to answer what
will be done, and how it will be done. The plan should cover three areas:The owner as a personThe financial pictureOther key factors
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Buying an Existing BusinessOf the numerous advantages to buying an ongoing business, three of the most importantare:• Because the enterprise is already in
operation, its future successful operation is likely.
• The time and effort associated with starting a new enterprise are eliminated.
• It sometimes is possible to buy an ongoing business at a bargain price.
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Key Questions
Why is the business being sold?What is the Current Physical Condition of the
Business?What is the Condition of the Inventory?What is the State of the Company’s Other
Assets?How Many of the Personnel Will Remain?What Type of Competition Does the Business
Face?How Does the Firm’s Financial Picture Look?
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http://smallbusiness.dnb.com/legal/banking-law-banking-finance-regulation/12330481-
1.html
Determining the Price
“How much are you willing to pay for the business?”
A number of measures estimate a small business’s value. The following considers the most important measures:Book valueReplacement valueLiquidation valuePast earningsCash flow
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Asset Pricing
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The prospective buyer needs to look at what the
owner is selling. Some common assets are:– Building– Inventory– Equipment– Prepaid Expenses– Supplies– Accounts receivable– Goodwill
Negotiating the Deal
Four critical elements include:InformationTimePressureAlternatives
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Franchising
A franchise is a system of distribution that enables a supplier (the franchisor) to arrange for a dealer (the franchisee) to handle a specific product or service under certain mutually agreed on conditions.
When the term “franchise” is used today, however, it typically refers to the franchising of an entire business enterprise.
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Top Franchises & Franchises by Industry*
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* From Entrepreneur magazine
Franchising
More than 42 percent of all U.S. retail sales come from franchised businesses.
More than half a million franchise businesses exist in the United States alone, employing 8 million people.
Conversion franchising refers to the conversion of independent, ongoing concerns into franchise-system members.
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Franchising Advantages
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Major advantages of purchasing a franchise include:• Training and guidance• Brand-name appeal• Financial assistance• A proven track record
Franchise Track Records
Source: http://money.cnn.com/galleries/2010/smallbusiness/1004/gallery.Franchise_failure_rates/index.html
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Lowest failure rates:o Super 8 – 4%o Days Inn – 6%o Subway – 7%o Dairy Queen – 8%o Dunkin Donuts –
8%
Highest failure rates:o Matco Tools – 36%o Cold Stone
Creamery – 31%
o Quizno’s – 25%o Curves – 16%o UPS Store – 16%
Franchising Disadvantages
There are also some disadvantages associated with franchises. Some of the most significant disadvantages are:
Franchise feesUnfilled promises and other restrictionsFranchisor control
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Franchise Fees & Requirements
Franchisor Control
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Home-Based Businesses
Although there are many reasons forthe growth of home-based businesses,the following three are among the mostsignificant:Economic restructuringChanging valuesEmerging information technology
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Top Franchised Home-Based Businesses*
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* From Entrepreneur magazine
Advantages and Disadvantages
Advantages include:Financial benefitsFlexibility and freedom
Disadvantages include:Vague boundariesResources
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Special Considerations
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General Location Factors
Regardless of the type of business, some generalfactors will influence where the operation is
located.Some of the most important general factors aresummarized as follows:Personal factorsEconomicsGeographicState and local laws and regulationsCompetition
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When Competition is Beneficial
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“You’ll love it. They'll do all
of your marketing for you, and your
sales will soar."
- Jim Stewart,Founder of
Seattle’s Best Coffee
When Competition is Beneficial
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“Their infomercial is
raising general
awareness about the product.”
- Gary Clegg,Inventor of the Slanket
Industry Specific Location Factors
RetailSmall towns, business districts, rent-paying
capacity, terms of lease, type of mdse to be sold, proximity to other businesses
WholesaleSimilar to retailers, but also must consider the
economic conditions of the local marketServiceSimilar to retailers. The type of service offered
is most important factor in determining locationManufacturingProhibitive moving costs
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Business Incubators
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Facility Considerations
ProcurementShould I lease, build or buy?
AdaptationConstruction: What is the condition? What changes
need to be made?Function: How well is it designed to fit the business’s
needs?Appearance: Does it suit the business?
LayoutIs arrangement of equipment and/or merchandise
optimal?Is there a clear view of facilities for managers to
observe?
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