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SELECT A TYPE OF OWNERSHIP 4.1 Run an Existing Business 4.2 Own a Franchise or Start a Business 4.3 Choose the Legal Form of Your Business RUN AN EXISTING BUSINESS GOALS • Identify the advantages and disadvantages of purchasing an existing business. • Explain the steps involved in buying a business. • Recognize the advantages and disadvantages of joining a family business. THINGS TO THINK ABOUT BUY AN EXISTING BUSINESS Advantages Established Customers, Suppliers & Procedures Seller May Train You Prior Records Make Planning Easier Financial Arrangements May Be Made With Owner BUY AN EXISTING BUSINESS Disadvantages Why Selling?---Business Not Making Profit? Inherit Problems With Customers/Suppliers Large Amount Of Money To Spend Initially STEPS TO PURCHASE A BUSINESS • Write specific objectives about the kind of business you want to buy, and identify businesses for sale that meet your objectives. • Meet with business sellers or brokers to investigate specific opportunities. • Visit during business hours to observe the company in action. • Ask the owner to provide you with a complete financial accounting of operations for at least the past three years. • Ask for important information in written form. • Determine how you would finance the business. • Get expert help to determine a price to offer for the business JOIN THE FAMILY BUSINESS Advantages Pride—Business Remains In Family Ability To Work Closely With Family JOIN THE FAMILY BUSINESS Disadvantages Working Closely With Family When You Don’t Get Along With Them Old Members May Be Making Decisions And Not Doing A Good Job Of It (not changing with the times) May Be Difficult To Keep Non-Family Members As Employees OWN A FRANCHISE OR START A BUSINESS GOALS What is a franchise. Recognize the advantages and disadvantages of starting a franchise or a new business. FRANCHISE OWNERSHIP A franchise is a legal agreement that gives an individual the right to market a company’s products or services in a particular area. A franchisee is the person who purchases a franchise agreement. A franchisor is the person or company that offers a franchise for purchase. BUYING A FRANCHISE Advantages Have A Established Product/Service Get Training and Support With Running Business Pay Less For Equipment and Supplies Because Company Can Buy In Large Quantities Product Consistency BUY A FRANCHISE Disadvantages Initial Costs Expensive—Franchise Costs Costs That Lower Profits—Royalties Owner Has Less Freedom To Make Decisions Dependent Upon Other Franchise Owners To Do A Good Job Too As That Reflects Upon You As Well Franchisor Can Terminate Agreement If You Don’t Pay or Follow Agreement Instructions OPERATING COSTS OF A FRANCHISE Initial franchise fee Start-up costs Royalty fees Advertising fees START YOUR OWN BUSINESS Advantages Make Your Own Decisions About Everything Satisfaction About Owning Own Business &/or Making A Profit Facing And Meeting A Challenge START YOUR OWN BUSINESS Disadvantages Risk Choose Good Location Choose Product/Service In Demand Estimate Demand For Your Product/Service Uncertainty Of Customers Hire Employees Make All Decisions Yourself CHOOSE THE LEGAL FORM OF YOUR BUSINESS GOALS Evaluate the different legal forms for a business. WAYS TO STRUCTURE YOUR OWN BUSINESS TYPES OF BUSINESS ARRANGEMENTS Sole proprietorship Partnership Corporation S corporation LLC—Limited Liability Company SOLE PROPRIETORSHIP Disadvantages If Someone Sues or Business Goes Into Debt, Your PERSONAL Assets Can Be Taken (Home, Bank Account, Car, etc.) SOLE PROPRIETORSHIP Advantages Little Government Involvement Can Start As Small As You Want You Make All The Decisions PARTNERSHIP Advantages Have Others To Help With Decisions Others To Share Financial Responsibilities Others To Share Work Responsibilities Little Government Involvement PARTNERSHIP Disadvantages Have Others To Help With Decisions While You Have Others To Help With Responsibilities; Jobs Must Get Done If Someone Sues or Business Goes Into Debt, Your PERSONAL Assets Can Be Taken (Home, Bank Account, Car, etc.) This May Be A Bit More Helpful To Have Others To Share Burden CORPORATION What Is It? Owners Called Share/Stockholders and own % of Shares According to Their Portion of Ownership in Company Have Board of Directors—Responsible for Electing Officers, Setting Salaries, Rules for Business Pay Dividends—How Profits are Paid Out CORPORATION Advantages Business Separate from Personal (if sued or lose money cannot take personal things only up to amount invested in company) Liability CORPORATION Disadvantages More Complicated—Need Lawyer More Costly More Government Regulation—More Paperwork Doubly Taxed—The Business Plus Any Profits You Get On Personal Taxes S CORPORATION What Is It? Taxed Like Partnership (Individuals pay taxes) Otherwise Run Like Corporation S CORPORATION Advantages Business Losses Can Be Subtracted From any other Taxable Income Liability Protection S CORPORATION Disadvantage Limited to 75 Shareholders so if Wish to Grow Business Large Will Need to Change at Some Point LIMITED LIABILITY COMPANY (LLC) What Is It? Doesn’t go on Forever—30-40 years Not Limited To Number of Shareholders Liability Protection Taxed Like Sole Proprietor/Partnership