Alternative Business Models Flashcards
Name the three alternative business models:
Purchase Alternative
Franchise Alternative
Family Business Alternative
What are the risks of buying a business?
Too large Difficult to determine fair price Overvaluing assets Redundant assets Existing obligations & liabilities Existing image Keeping clients
Determine the true value
Do a financial assessment. Get help! Determine true profitability Determine actual cash flow Get full debt disclosure Examine receivable history Examine all contracts and obligations (suppliers, landlord etc.) Value all assets Value all liabilities
What are the personal considerations for buying a business?
Risk tolerance
Finances
Knowledge, skills, experience
Opportunities
Determine the business structure:
Proprietorship/Partnership
You will need to set up a new business
You are actually buying assets and goodwill
Corporation
You can buy assets or shares
What do you investigate when buying a business?
Why are they selling? Expect a lie! Financial statements Tax returns Suppliers Customer Database Employees Bankers
What are the merits of buying?
Established: Sales Suppliers Market Systems Goodwill Assets
The Purchase Agreement:
Negotiate from strength
Set a firm price range
Do not be emotional. Be prepared to walk away.
Consider your ideal payment option. Cash offer, financed, etc.
Consider your need for training or assistance during the transition.
Insist on a full disclosure clause.
Insist on a non-competition clause (both area and time)
Useful formulas: ROE and Liquidity
Net Profit/ Owners Equity and Current Assets/Current Liabilities
What is a franchise?
A Franchisor/Franchisee relationship that establishes the rights and responsibilities of both.
Types of Franchises:
Licensing
Dealership
Conversion
MLM
A franchisee is buying a full operational model including:
name, systems, image, product, and marketing.
Franchisee merits:
Market research complete Branding Client base Training Turn key operation Advertising and Marketing support
Franchise Drawbacks
Franchise fee Franchisor restrictions Royalties Multiple restrictions Goodwill resorts to Franchisor
How do I choose a franchise?
Is a franchise right for me?
What is the investment required?
What knowledge, skill or experience do I have that is relevant to the product or service offered by the franchisor?
What is the franchisors image?
What support does the franchisor provide?
What competition exists?
Can I live with the restrictions?
