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uploaded by user Yuyumon Class: BUS 353 Lecture/Exam: Exam 2, Chapter 4-9 School: SBU Semester: Fall 2012 Professor: Feingold

Chapter 4

Franchising

Marketing system for a business according to specific terms, whereby franchisee conducts business according to terms specified by franchisor (McDonalds restaurant)

Franchisor Franchisee restaurant) Franchise contract Economic impact

Party in franchise that specifies terms (McDonalds corporation) Entrepreneurs who is in the contract with franchisor (Guy buying a McDonalds Legal agreement between both 900000 Franchises in US, making 9.6 million jobs, output $868 billion Accounted for 3 percent of all business establishments ECONOMIC ACTIVITY BECAUSE OF FRANCHISES: 21 mil jobs (15% of all jobs), $2.31 trillion output, $660 billion in payroll

Product and trade name Business format franchising

Franchise agreement granting the right to use a widely recognized product or name (coca cola bottlers) Franchise agreement, whereby franchisee gains entire management and market system, geared toward entrepreneurs (Hilton,motels, business services) Independent person acting as a sales agent with responsibility of finding new franchisees within new territory, may supply support services less risk, not going in by yourself, using trademark, proven success model, training, economics of scale Ownership of more than one franchisee from the same company, by same company or person (person who owns three mcdonalds0 Individuals who get right to open several franchise outlets in given area operation of franchise in a host store (Pizza Hut at Walmart) Operation of several franchise organizations within a single franchise structure (one company has several franchise brands) Bringing two franchise together under one roof (A&W and KFC) High chance of success, less planning, existing customers, bargain price, experienced employees, existing business records Existing problems, poor quality of current employees, poor business image, modernization required, purchase price based on inaccurate data, poor business location Restricts, sales, appearance, goods/services, operating hours,

Master licensee Advantages of Franchise Multiple unit ownership Area Developers Piggy back Multi-brand franchising Cobranding FranchisePros for buying FranchiseCons for buying

Franchisor control

controlling advertisement Gov concerns Misleading earnings claims Where franchisor becomes a competitive threat to franchisee Restrictions on franchisees to liquidate their holdings for an alternative investment Conflict of interest Churning, acting by franchisors to void contract in order to sell franchise to someone else in order to collect additional fee Encroachment: Franchisor selling franchisee location within market area of an existing franchisee Evaluating Franchise opp. Franchise Disclosure Req. FDD Franchise fee Personal observation, advertisement, find information about franchise from FTC, internet, Franchisors themselves, existing franchisees Rule 436 of FTC: Franchisor must disclose certain info to prospective franchisee. Franchise disclosure document: document accepted by FTC as satisfying its franchise disclosure requirements Initial franchise fee: Buy-in Investment cost: Renting or building outlet Royalty payments: Charged as % of gross profit Advertising cost: Fee required to pay for advertisement (1-2%) Legal issues in franchising Matchmakers Due diligence for purchasing Owners reasons for selling The franchising contract: Contains termination and transfer provision, contains statement of rights to renew contract Specialized brokers that bring together buyers and sellers of businesses Exercise of reasonable care in evaluating business opportunity Old age, desire to reallocate, decision to accept a position in other company, unprofitability, loss of exclusive sales franchise, maturing of the industry and lack of growth potential review financial statements for past five years. Non-disclosure agreement: Agreement that both will not reveal confidential information Recognize that financial data can be misleading, so adjust to true state of the business (fair market value) Nonquantive Factors in valuing a business competition, market, legal commitments, buildings, etc

Examine Financial Date

Negotating and closing deal

Terms of Purchase. Closing sale best handled by a third party

Chapter 5 Family business Family concerns Business Concern Owner-managed business Sibling partnership Cousin consortium Adv. Of family business Care and nurturing of family members, employment and advancement in the firm, loyalty to the family Production and distribution of goods, need for professional management, effective and efficient operation of the firm Venture operated by a founding entrepreneur Children of founder become owner and managers Third and subsequent generation of when children of owners take on management Strengthen family relationships, financial sacrifices, family values, high levels of concern for its community, operation distinguished from competitors, emphasis on quality and value Conflict among members about: Risk, nepotism (employing family vs. outsiders when outsiders would be a better choice), family traditions vs. the business need to innovate, unity and cooperation vs. business need to foster diversity, family loyalty vs. need to provide opportunities for non-family employees Desire based, desire to contribute to it (want to), cost based, based on belief that opportunity of gain is too great to pass on (have to), need based, commitment based on self-doubt that he/she lacks skills to make it anywhere else (need to), obligation based, commitment as a result of duty or expectation (ought to) family retreats: Gather family members to discuss matters. Use of outside facilitators might be necessary patterns of behaviors and beliefs that characterize a particular firm Advance planning for leadership succession

Disadvantages

Commitment to fam. Bus

Need for good governance Organizational culture

Conditions favoring successful leadership in fam. firm Transfer of ownership

passing ownership of a family business to the next generation involves deciding: Who will inherit, what share, transfer gradually, what to do with assets, etc? Couples that co-own and manage businesses Organized group of family members that discuss business periodically

Co-preneurs Family council

Chapter 6 Business plan Document that sets out the basic idea underlying a business and related startup consideration. Three elements: Logical statement of a problem and statement of its solution, significant amount of cold hard evidence and candor about the risks, gaps and other assumptions that might prove wrong. For insiders (management, to define purpose of company) and Outsiders (finance guys, to fund company) Identifies the nature and context of the business opportunity Presents the entrepreneurs approach to exploiting the opportunity Identifies factors affecting the venture success Serves as the entrepreneurs tool for raising capital Dehydrated plan Comprehensive plan Before writing plan Function of plan A short form of a business plan that present only most important issues. Focus on market issues. Adequate for seeking financing from banks Full plan. In depth analysis of critical factors that determine success and failure. Good for starting new business or facing significant change Three elements: Strong market potential, attractive industry, right team To provide a clearly articulated statement of goals and strategies for internal use To serve as a selling document to be shared with outsiders Content of a business plan Executive summary Industry description Target customers Competitor Analysis Product/Service plan Marketing plan Op/Development plan The opportunity, critical resources, the entrepreneurial team, the financing structure, the context (external factors). Conveys clear, concise picture of the company and its purpose. Written at the end, attached to the front Broader industry, niche where firm plans to participate Demographics Product or service attributes that are or are not provided by competitors Describes prod/services to be provided Describes user benefits of the product or service How will be produced and provided

Purpose

Management Team Critical risks Offering Financial plan

Key players and skills Identifies potential risks that may be encountered by an investor Indicates how much money is needed and what for Projection of companies financial position on figures Includes Pro Forma: projection of financial condition for up to five years

Presenting Plan

Understanding the Investors Perspective The Investors short attention span

Plan that attracts investors

Plan that speaks investors language market oriented product, evidence of target customer acceptance, present credible financial projections, are not formal prospectus or offering memorandum. A analysis on how a business is going to create profit and cash flows given its finances Component of business model that identified different types of revenue streams a firm is expected to have Component of business model, estimates nature and types of cost and expenses Component of business model, estimates types and amounts of investments needed

Business model Revenue model Cost structure Max investment

Chapter7 Small business marketing Make product that targets user and satisfies his/her need Emphasizes benefits customer will get from product Activities: Indentification of target market, determining target markets potential, delivering bundle to target Marketing philosophies Product oriented Sales oriented Consumer oriented Core product/service Actual product/service Augmented product/service make better product than competition Favors sales over efficiencies All marketing efforts begin and end with customer Fundamental benefit sought by customers Basic physical product that delivers those benefits Product + any benefits that come in addition

Marketing plan Marketing research Market analysis Marketing mix

Marketing research, market segmentation, sales forecasting Gathering information: Find info, get secondary data, get primary data, interpreting data Locating and describing potential customers Combination of product, price and promotion and distribution

Methods for collecting primary data Observations, questioning methods (surveys, experiments, interviews) Interpreting the Data Transforming data in tables and charts When research is too expensive: Go on the internet Market Segmentation Segmentation variables: One market behavior segmented from another Benefit variables: Characteristic of market segments according benefit Demographic variables: Specific characteristics describe customers and purchasing power Market segmentation strategies Un-segmented strategy: Mass marketing Multisegment strategy: Recognizes different preferences of individual market segment and develops marketing mix for each Single segment strategy: Recognizes existence of several segments but focuses on only the most profitable segment Estimating Market potential Sales forecast how much product or service can be sold Limitations to forecasting for startups: unique new business circumstances, lack of familiarity with quantitative methods, lack of familiarity with the forecasting process Marketing strategy plan Product, distribution, pricing (production and marketing cost), promotional segment (customer awareness and willingness to buy), must break even Description of potential customers in target market original creations, inventions, copy right, works of art everything is protected by patents and copyrights Newspapers, research articles etc. Own research (chain-ratio-method) forecasting method go from large focus (target market) then go down to sales forecast

Customer profile Intellectual property Secondary data Primary data Breakdown process

Buildup process Direct forecasting

All target markets are identified and estimated sales added up Sales only estimated variable

Chapter 8 Building a management team needs managers and other key persons to give company direction Characteristics: Capable of securing resources necessary for success, reassuring investors about their investment and diversity of talent. Partnership option Partnership: Legal entity formed by 2 or more co-owners to carry a business MUST PROVIDE PROFIT Partnership qualification: Required: Legal age to contract (18) Questions about formation: What is our business concept, why do we need each other etc. Right and duties: partnership Agreement (document that states rights and duties), joint and several liability (liability of each partner), Termination of partnership (provisions dealing with death and incapacitation) Natural person Non-natural person Sole Proprietorship Human Company, organization, human, dolphins!! 70% of all businesses Business owed by one person, unlimited liability Owners usually asked to sign second document that they are personally liable with their assets if company fails Advantages: All firm profits, title to all assets, easy transfer of ownership, less paperwork, freedom from stakeholders Disadvantages: Bears all risk, unlimited liability, no tax free benefits, terminated at death, limited to personal capital, taxed on business income as personal income Partnership Limited Partnership 10% of all businesses, Limited Liability Company also a partnership General partner Active in the business, personally liable for the debt, unlimited liability Limited partnership At least one general partner and one more unlimited partner, limited partner not active in the business, liability limited to investment in business

S Corporation

Eligibility: No more than 100 stockholders, must be individuals or trusts type of corporation with limited liability but is taxed as a partnership Only one class of stock

Corperation

20% of all businesses Organization that exists as legal entity and provides limited liability to its owners

Legal entity C Corporation

Business organization that is recognized by the law and has a separate legal entity Corporation: an ordinary corporation that is taxed by government as separate legal entity Legal entity: Recognized by law as having separate legal existence

Professional corporation Corporate charter

Form of corporation that shields owners from liability and is set up for professionals to set up their own practice (doctors, engineers, etc) document that establishes corporations existence Has articles of incorporation, or certificate of incorporation

Maintaining corporate status Rights of stockholders

Must hold annual meetings of both shareholders and board of directors, maintain separate bank accounts and file separate tax returns Stock certificate: Document specifying number of shares owner has Pre-emptive right: Right to buy new shares of stock before they are offered to the public Legal status: Ownership provides control, limits liability to investment, and can be transferred

Liability of owner

piercing the corporate veil: Courts conclude that incorporation has been used for illegal purposes and remove liability protections from the corporate entity Agency principle: An employer is liable for the actions of an employee while on company business. Organizing as corporation shields the personal assets of owners

Board of Directors

Governing body of a corporation elected by the stockholders Duties of directors: Elect the firms officers (top management), approve plans and policies, review managements performance, and declare dividends

Nonprofit Corporation

Serves some purpose but not for generation of profits Organizational test: Verification if non-profit is staying true to its stated

purpose Strategic alliance Organizational relationship that links two or more independent business entities in a common endeavor Pros: increased performance, reduced cycle times through shared resources Cons: Difficulty in establishing and maintaining alliances Income of business Sole: Taxes as personal income to proprietor General partnership: Taxed as personal income to partners C Corp: C Corporation taxed on income, stockholder taxed if and when dividend is received (double taxation) Continuity of business Sole: Dissolved upon death Partnership: Unless specified, dissolved when withdrawal or death Corporation: Continuous Advisory council Alternative to directors, acts like board

Chapter 9 Location Five key factors traditional, web-based, entrepreneurs home Neighborhood mix, security, services (infrastructure), past tenants fate, locations lifecycle stage (up and coming, or out and down) Alternative: Resource availability, entrepreneurs personal preference, site availability and costs, business environment conditions, customer accessibility Brick and mortar store Enterprise zones Selecting good location traditional physical store from which businesses have historically operated State designated areas that are established to create new businesses in. SEZ in China Customer accessibility Business environment conditions Availability of resources Personal preferences of the entrepreneur Key factors Site availability and costs. Buying vs. leasing

Business incubator Designing and equipping Entrepreneurs home

Special sites that help start companies They should be geared towards the need of the business Low start up, need to separate business from personal Challenges: Business image, may seem unprofessional, legal considerations, family and business conflicts

Internet

E-commerce, benefits: Competition with larger firms in larger markets, help with cash flow problems, builds better customer relationships through better service Advantages: Income keeps flowing, flexibility and lower costs, reduces risk of transition Disadvantages: Need to find suitable location for growing venture, conflict with personal life, risk of failure of startup after leaving present job

Part-Time Startup

General purpose equipment Special purpose equipment B2B Disintermediation Auction sites B2C C2C Content based model Information based model Transaction based model

machines that serve many functions in production process, easily adaptable to operations, multifunctional Machines designed to serve specialized functions in production process Business model based on selling to business customers electronically Situation where wholesaler and B2B chooses to bypass middle man and sell directly to consumer Ebay Based on selling to final consumers electronically Set up around internet auction sites, allowing people and companies to list items for sale Website charges fee to access for info, no buying and selling of product Website provides information about businesses but does not charge for its use Website provides mechanism for buying or selling

Foreign Corrupt Practices Act

one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.[1]

Core competencies

It fulfills three key criteria:

1. It is not easy for competitors to imitate. 2. It can be re-used widely for many products and markets. 3. It must contribute to the end consumer's experienced benefits.

SWOT

evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture.
The analysis of a problem to determine if and how effectively it can be solved. It contains 3 parts: The operational - will it work? The economical - costs and benefits? The technical - how can it be built?

Feasibility analysis

Prospectus

Document that describes a business for a potential buyers. Provides investors with material information for them to make a sound judgement on the investment. It includes: INvestments, Financial statements, biographies of officers and directors, info about salaries, litigation, list of properties and other information. Also used before an IPO.