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QUICK ROUTE TOENTREPRENEURSHIPWhat is Franchising?A management whereby the manufacturer or soledistributor of trade marked product or services givesthe exclusive rights of local distribution to independentretailers for their payment and conformance tostandardized operating procedures.

At least two levels of people are involved in thefranchise system:The Franchiser, who lends his trademark / trade name and a business system Franchisee, who pays a royalty and often an initial fee for the right to do the business under the franchisers name and system

Franchise TypesProduct Franchising

Selling of the finished goods with just mere display of the goods, which facilitates easy accessibility of the product to the customer and the actual sales transaction, without any value addition. E.g retail outlets like Nike, Adidas etc.

Process Franchising

Outlets are granted to use the brand name and process of the franchiser. The recipe must be the same. The process and recipe are generally patented by the parent company. ( coke)Franchise Types Cont'd...Business Format Franchising

Name, sale and method of doing the business are transferred with knowledge of conducting the outlet with effective follow up mechanism by the franchiserEg, Mc donalds

Areas of FranchisingApparel and Accessories Automotive Beauty & Health Building Products and servicesBusiness/Personnel Services Children's Products & Services Computer related Products and ServicesDecorative Products Services Education Related Services Fast Food/Bakery Goods Frozen DessertsHotels & Motels Maintenance ServicesPets Photographic Services Printing Services Publishing Services Real Estate Recreation Restaurants Retail BusinessSecurity Systems ServicesTravel Related Services and many others..Advantages to the FranchiseeUnder franchising there are little chances of failure as compared to risk normally associated with start up business.Benefit and use of the business experience of others.Reduced expenditure on Advertising & promotion at a per unit level.Opportunity to start a proven business with limited capital.Franchiser available for assistance and guidanceCost savings when purchasing supplies through the franchiserAccess to R& D & product development, efforts that the franchiser had invested in.

Advantages to the FranchiserQuick expansion, with less Capital InvestmentLess Number of EmployeesFast and well controlled distribution of its products Product and quality standards as per his specificationsLimited Risk FactorRisk is spreadLarger Market share in a short timeLean Organization StructureOngoing Revenue from Royalties and Franchise FeeIntegrated Public ImageGrowth

DisadvantagesFranchiser Failure of the franchisee to operate franchise properly. High Training efforts Difficult to maintain Quality Risk to reputation Loss of Business secrecyFranchisee

Revenue outflowLimited freedom Operating restrictions Inability of the franchiser to provide promised servicesDetailed and open financial recordsHow the Franchiser is PaidRoyaltyLump Sum PaymentShare of Brand AdvertisingHigher Price of Key & Secret MaterialsOvercharging for Plant & MachineryCost of Manual of ProceduresTraining ChargesSoft-ware LicencesVisit Fees- Many of the "name" franchisers (McDonald's, Canadian Tire, Subway etc.) can be easily financed by special investment companies which look for people who have been able to obtain the franchise but only need money to get going.

AncillarisationAncillary

Oxford Dictionary : Providing Essential SupportMeaning of an Ancillary UnitIndustrial undertaking having investment in fixed assets in plant & machinery not exceeding Rs. 100 lakhs and engaged in :

Manufacturing of parts, components, sub assemblies, tooling or intermediatesRendering services and supplying not less than 50% of its production to one or more other industrial undertakings for production of further articles

Areas of AncillarizationIndustryAncillaization Range %Transportation50 to 90Prime mover and Power base30 to 50Industrial machinery and Machine tools20 to 40Chemicals and Pharmaceuticals15 to 30Consumable durable goods10 to 30Metal, mineral and petroleum industry5 to 10All other industries (wood, paper, ceramic, leather, rubber etc.)2 to 10AdvantagesMinimizes set up costLow level of InventoryEconomical SourcingBetter Quality StandardsComplementary RoleDevelopment of Entrepreneurial SkillsDisadvantages Dependence on parent company Obsolescence Multiplicity of suppliers by parent company Securities like earnest money deposit Delay in receiving payments

Legal AspectsPenal interest rate upto 150 % of Prime Lending Rate(PLR)The agreed date of settlement of dues not to exceed 120 days An additional mechanism of arbitration and conciliation to resolve disputes between SSI supplier and the large scale buyer under the Director of IndustriesBalance Sheet to disclose the delayed paymentsThe Interest on Delayed Payment to Small Scale & Ancillary Industries undertaking Act:Enacted in 1993 and amended in 1998Government Initiatives to promote AncillarizationSharing successful company experiencesTraining on ISO / QS 9000Collaboration on Benchmarking ServicesJoint Projects for Productivity ImprovementsTechnology Development ProjectsTrade Delegations Worldwide Trade Fairs / ExhibitionsGlobal Dissemination of Information

Government Initiatives to promote Ancillarization Linkages BuildingScience & Technology Parks (STP)Vendor Development Programmes (SISI)Sub-contract Exchanges (SISI)Cluster-development Programme (SIDBI)Purchase & Price Preference Scheme (NSIC)ACQUISITIONING

MEANINGAn acquisition is the purchase of a business or a part of it so that the acquired business is completely absorbed and no longer exists as a business entity.

Exampleemami acquired 57% stakes of zandu

Vodafones purchase of 52% stake in Hutch Essar for about$10 billion.Essar groupstill holds 32% in the Joint venture.Hindalco of Aditya Birla groups acquisition of Novellis for$6 billion.Ranbaxyssale to Japans Daiichi for$4.5 billion.Sing brothers sold the company to Daiichi and since then there is no real good news coming out of Ranbaxy.ONGCacquisitionof Russia basedImperial Energyfor $2.8 billion. This marked the turn around of Indias hunt for natural reserves to compete with China.

NTT DoCoMo-Tata Teleservices deal for$2.7 billion. The second biggest telecom deal after the Vodafone. Reliance MTN deal if went through would have been a good addition to the list.HDFC Bankacquisition of Centurion Bank of Punjab for$2.4 billion.Tata Motorsacquisition of luxury car makerJaguar Land Roverfor$2.3 billion.This could probably the most ambitious deal after the Ranbaxy one. It certainly landed Tata Motors into lot of trouble.Wind Energy premierSuzlon Energysacquistion ofRePowerfor$1.7 billion.Reliance Industriestaking over Reliance Petroleum Limited (RPL) for 8500 crores or$1.6 billion.

ADVANTAGES OF AN ACQUISITIONAn existing business will have an operation in place and thus can avoid some of a new ventures risks and challenges An entrepreneur typically starts with some profits and positive cash flow Market speculation and uncertainity in sales projections are reduced because the business already has a track record.Condition of the plant and equipment (assets), if any, is known.

ADVANTAGES..Bankers and lenders and new outside investors feel more comfortable while lending or investing in an established business.The previous owner brings valuable experience to the enterprise.Fixed assets can be purchased for less in a buyout.Existing business may have a developed market structure of suppliers, wholesalers, retailers etc.Employees of the existing business can be an important asset.The entrepreneur can spent more time in assessing new opportunities to expand or strengthen the business.

DISADVANTAGES OF AN ACQUISTIONThe existing business may have marginal success record or even failureThe business is acquired at an inflated purchase price reflecting unwarranted goodwill or a faulty business modelOne may end up inheriting some one else problem.The existing products are in the decline phase of the life cycle.Employees may have difficult time to adjust with the new management

FOUR STEPS OF ACQUISITIONINGPlanning your approach and targeting the type of business you wish to acquireFinding available business to purchase Using an appropriate methodology to evaluate the dealNegotiating the terms and purchase price for the business.

IN BUYING A BUSINESS YOU MUST EVALUATEManagementReasons for SellingCustomers and ProspectsMarketsCompetitionProducts or Services OfferedChannels of Distribution, the Sales Force, and MarketingOperations, Human Resources and Information TechnologyProfit & Loss Statements, Cash Flows, Balance Sheets and ForecastsCritical Risks and Contingencies

VALUATION APPORACH

ASSET VALUATION METHOD

Book ValueAdjusted Book ValueRealization ValueReplacement ValueVALUATION BASED ON CASH FLOWEARNINGS VALUATION