...Chapter 7 Buying an Existing Business Part 1: Learning Objectives 1. Understand the advantages and disadvantages of buying an existing business. 2. Define the steps involved in the right way to buy a business. 3. Explain the process of evaluating an existing business. 4. Describe the various techniques for determining the value of a business. 5. Understand the seller's side of the buyout decision and how to structure the deal. 6. Understand how the negotiation process works and identify the factors that affect the negotiation process. Part 2: Class Instruction Introduction Some entrepreneurs choose to buy existing businesses rather than start their own. In a typical year, between 500,000 to one million businesses are bought and sold. Purchasing an established business can offer many advantages—if the entrepreneur knows what they are really buying and if the business is priced right. Buying an Existing Business LO 1 A prospective owner must ask several key questions before buying an existing business. • Is it the right type of business for the market? • What experience do I bring to the venture? • What is the success potential? • What changes are needed—and how extensive are they—to realize the full potential of the value of the business? People buy businesses for different reasons. As described in Figure 7.1: Types of Business Buyers, we can categorize buyers into four areas: 1. Main...
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...127 Upon completion of this chapter, you will be able to: 1 Understand the advantages and disadvantages of buying an existing business. 2 List the steps involved in the right way to buy a business. 3 Describe the various methods used in valuing a business. 4 Discuss the process of negotiating the deal. Buying an Existing Business Although our intellect always longs for clarity and certainty, our nature often finds uncertainty fascinating. —Karl von Clausewitz A pessimist sees the difficulty in every opportunity: an optimist sees the opportunity in every difficulty. —Winston Churchill CHAPTER FIVE Learning Objectives 1-A. Understand the advantages of buying an existing business. 128 SECTION 2 • BUILDING THE BUSINESS PLAN: BEGINNING CONSIDERATIONS The entrepreneurial experience always involves risk. One way to minimize the risk of entrepreneurship is to purchase an existing business rather than to create a new venture. Buying an existing business requires a great deal of analysis and evaluation to ensure that what the entrepreneur is purchasing meets his or her needs and expectations. Exercising patience and taking the necessary time to research a business before buying it are essential to getting a good deal. Research conducted by Stanford’s Center for Entrepreneurial Studies reports that the average business purchase takes 19 months from the start of the search to the closing of the deal.1 In too many cases, the excitement of being able to implement...
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...tools used to base effective business decisions. Calculating time cost, money cost, and return on forecast, all are based on data mining, marketing research, information analysis and findings. Statistics is way to finding the answer. Statistics – The Method of Organizing Data Generally, statistics is a set of disciplines to analyze quantitative information. Statistics entails all aspects of information: comprehending, collecting, communicating, organizing, and interpreting. All of these are the key reference for forecasting consequences or decision making. Thus, it permits us to estimate the extent of our errors. Purchasing a Business It is not an easy task or decision to purchase a business. Before the final decision is made there are many things to consider. To start with, what exactly do you want to achieve? For whatever reason, you must be sure that it is something that you are ready to devote a large amount of time and energy too. Otherwise, you might be trapped into doing something that you loathe. You must ask yourself how far you are ready to commit. How much of your own time, energy, and money are you willing to sacrifice? Finer Diner Sales Proposal The owner of the Finer Diner submitted a proposal to you in hopes of selling the business to you. His asking price is $250,000. Your financial institution advises that your monthly payment to finance that amount would be $1850.00. This is in addition to other business expenses you would incur such...
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...Getting into Business: If a person wishes to go into business they have three options. These options are: 1 Starting from scratch 2 Buying an existing business 3 Buying a franchise 1 starting from scratch: How and why people may decide to begin a business from scratch? If you start a business from scratch, you will need to ensure that you have enough money to do all the initial work of setting up a business and buying the stock. When starting a new business it is hard to predict how much income will be earned and what the expenses will be. It is important to have enough initial investment to meet the expenses involved in starting up the business and enough income to cover ongoing expenses. It may however, be hard to borrow money for a business that has not shown ability to succeed. If you were thinking of going into a business you might decide to ask someone to join you as a partner. In this way you and your partner can share the risk of starting up in a business and share the profits. You can also share the time spent in the business. This can sometimes ease the burden of working long hours. Advantages: • The owner has complete freedom to set up the business the way they want it. • The owner can determine the pace of the growth and change. • There is no goodwill to pay for. Disadvantages: • Setting up a new business involves high risk and uncertainty. • It takes time to train and hire staff, find a customer base and start making money! Existing Businesses: ...
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...29, 2012 My business strategy is to purchase an existing tea and coffee shop which is located a mile away from where I work in Ashburn, Virginia, the business is call Sakasa tea and coffee. Sakasa is located next door to George Washington University and directly across is a chick fil a and a small hotel also it is right off a major highway so it has a great location. The reason the owner is selling is because of health issue and as a result, he cannot run the business the way it should. The business is making a profit of $2000.00 dollars a month on average after paying all expense. But I feel he can generate $5000.00 a month on average if he markets the business. The current owner never advertises Sakasa tea and coffee in the area. Therefore, I assume since he is located next to a major University he did not have to do any advertising and it was all word of mouth by the students which is a great. Sakasa serve a variety of hot and cold tea and coffee, they use only 100% organic Fair Trade coffee and espresso beans (Sakasa tea & coffee, 2008) . They also freshly roast all coffee beans locally, so you get the true magical flavor of every bean. It is truly amazing. Also Sakasa feature a huge selection of loose leaf teas, they also has a variety of savory tea sandwiches, assorted sweets, and freshly baked scones which served with different types of jam and English Devonshire cream(Sakasa tea & coffee, 2008) . My business concept is to keep the existing concept but add...
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...produce printed circuit boards (PCB) at home instead of buying them from a third-party contract. Business intelligence tools Stryker Corporation is considering a proposal in response to the difficulties with existing suppliers. Requires students to formulate and carry out basic quantitative analysis of the budget of the capital, in particular, to calculate the net present value (NPV) Internal Rate of Return (IRR) and the payback period. “Hide by Timothy A. Luehrman Source: Harvard Business School 6 pages. Publication Date: May 25, 2007. Prod. #: 207121-PDF-ENGConsiders the proposed investment in the ability to produce printed circuit boards (PCB) at home instead of buying them from a third-party contract. Business intelligence tools Stryker Corporation is considering a proposal in response to the difficulties with existing suppliers. Requires students to formulate and carry out basic quantitative analysis of the budget of the capital, in particular, to calculate the net present value (NPV) Internal Rate of Return (IRR) and the payback period. “Hide by Timothy A. Luehrman Source: Harvard Business School 6 pages. Publication Date: May 25, 2007. Prod. #: 207121-PDF-ENGConsiders the proposed investment in the ability to produce printed circuit boards (PCB) at home instead of buying them from a third-party contract. Business intelligence tools Stryker Corporation is considering a proposal in response to the difficulties with existing suppliers. Requires students to formulate and carry...
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...CHAPTER Franchises and Buyouts What comes to mind when you see the word franchise? For many, it’s a fast-food restaurant. For some, it’s the standardization of America—the same product or service wherever you go. For still others, it is a business model with franchisor rules that must be followed. For Dina Dwyer-Owens, however, it’s a way of teaching “principles and systems of personal and business success so that all people we touch live happier and more successful lives.” Dwyer-Owens is chairwoman and CEO of The Dwyer Group, a holding company of seven service-based franchise organizations: Aire Serv, Glass Doctor, Mr. Appliance, Mr. Electric, Mr. Rooter, Rainbow International, and The Grounds Guys. Founded in 1981 as Rainbow International, The Dwyer Group’s companies were providing services through more than 1,500 franchises in 10 countries by 2012. Don Dwyer, Dwyer-Owens’ father, fit the profile of an entrepreneur. In his youth, he had a newspaper route from which he © CBS Photo Archive/Getty Images In the SPOTLIGHT The Dwyer Group®: Seven Companies, One Code of Values www.dwyergroup.com After studying this chapter, you should be able to… earned over $2 million in today’s dollars by the time he finished college. Later, he bought a motivational materials franchise. His performance so impressed the franchisor that he made Dwyer part of his management team. Dwyer moved on to head Rainbow International, a carpet dyeing and cleaning company...
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...Ansoff’s Matrix: Task 1 Ansoff’s matrix: Is divided into 4 sections and they are: market penetration, product development, market development and diversification. This helps a business determine their product and strategy in market growth [1]. Market development: is where a business is targeting a new market with their existing products. Market penetration: When businesses increase sales using their existing products or service in their existing market. Businesses may use promotions or pricing to increase the amount of products, existing customers buy [3]. Product development: Businesses develop new products into their existing market. The business may create new products targeted to their existing customers [3]. Diversification: is when business introduce new products to their new market. http://t3.gstatic.com/images?q=tbn:ANd9GcR3HRc5PHi_StYTRWMrqAMxardppg8n0rtpQ8SHSyLpdcGViTiMDiagram of Ansoff’s Matrix: [2] Tesco: Market penetration: This is where existing products are sold in existing markets. To be able to increase sales Tesco uses competitive pricing strategies such as, 3 for 2 offers or Buy one get one free to encourage customers to buy. Other methods to consider are loyalty cards that encourage customers to spend more by offering the customers points when they buy certain products. Advertising is key to help Tesco gain more customers. Tesco attracts their customers with their advertisements that they display on Television and Billboards presenting...
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...more to existing customers - Encourage more frequent buying Increase market share by getting customers to buy more frequently. If research shows customers buy at a particular time, make contact with them just beforehand. Adding value to products and services to ensure repeat business, adding to a service at little cost that is useful to your customers - Get customer to spend more Encourage customers to buy a premium product or service that better meets their needs and provides a superior return. Offer purchase incentives and price promotions on items that they usually buy from competitors, such as 'buy one get one free' or 'buy for ten months and get two free'. 2. Getting old customers back - Find out what changed Identify why customers stopped buying. Consider whether product or service is: • no longer necessary • too expensive • unsatisfactory • being beaten by a competitive offer - Rebuild contact with customers Try to have some form of regular contact e.g. monthly or quarterly phone calls, formal or informal visits to customers, mailshots or email newsletters - so that customers don't feel they are being ignored and look elsewhere. Rebuild contact, understand, focus on customers’ needs, e.g a letter expressing regret that they have stopped buying and making them a time-limited offer. - Make new offers to tempt Consider ways to make business more appealing...
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...mathematician with an expert insight into business management. Asnoff developed a method for measuring the profit potential of alternative product-market strategies. We called it Asnoff`s product market expansion gird. Asnoff`s product market expansion gird: Marketing planning tool which usually aids a business in determining its product and market growth. determined by focusing on whether the products are new or existing and whether the market is new or existing. Alternatives marketing strategies 1234- Existing products to existing market New products to existing market Existing products to new market New products to new market 1-Market penetration This strategy focus on selling your current product range to your existing market in order to increase your market share. In this strategy we focus on promotional activities and pricing offers to increase customers demand. Also royalty programs will help in increasing usage of our current customers to the product. Or by Driving out competitors by buying small companies or Making competition more difficult to them by pricing strategies . Example : -Airways royalty programs (Mile program) , 2-Product development Product development strategy including developing a new product , modifying the current products or brand extension. This strategy require continues R&D investments. Also the company must make market research and focus groups to know more about current customers needs and buying habits. Different approaches for product development...
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...Consumer Buying Behavior of Lawn customers in Karachi Seema Mumtaz Std 16655 Mphil (BM) Synopsis Proposed Research Topic: Impact of Brand Image and Advertisement on Consumer Buying Behavior of Lawn customers in Karachi Purposes/Aim: The purpose of this study is to examine the impact of brand image and advertisement on consumer buying behavior in the general public at Karachi. Objective of the study: a) To explore the impact of brand image and advertisement on Consumer buying behavior b) To determine factors those are influencing consumers to purchase Branded lawn fabric. c) To find out the female buying behavior about branded lawn wear. Scope of Study: a) This research will help textile marketers and merchandisers in understanding consumers’ preferences about branded/designer lawn. b) Also this research will help textile marketers and merchandisers by providing the essential knowledge of the factors that influence females’ buying intention towards branded lawn fabric. c) This study will guide entrepreneurs in developing strategies for the branded lawn. Background and Existing literature: Brand image and advertisement play a crucial role to boost up any business performance...
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...Trek Case 1. The role of the buying center at Trek is that the group of individuals working there are “responsible for finding the best suppliers and vendors for the organization’s purchases”. At Trek’s buying center it consists of a purchasing manager, buyers who identify domestic and international sources of materials and components, and representatives from research and development, production and quality control. Also at Trek, purchasing managers are most likely to comprise the buying center in a decision to select a new supplier. Sometimes, in important technical purchases, it will be representatives from research and development, production, and quality control. It is very important to Trek that these new suppliers must benefit the company, for example in a way that has an environmental impact. These individuals are the deciders who have formal/informal power to select or approve when a supplier should receive a contract. 2. Trek requires four criteria when identifying potential suppliers. These are quality, delivery capabilities, price, and environmental impact of their production process. In regards to these criteria, current suppliers receive scores on the number of defects in large quantity of supplies, whether just-in-time orders made their deadlines, if the target prices were maintained, or if recycled packaging was used. Once a business is selected, it is continuously evaluated based on the elements of those four criteria. 3. One of treks...
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...Student Professor: Business 402- Small Business Management February 1, 2014 The small business that I chose to compete with is a barber shop that I frequently visit. This barber shop is located in the small town of Charles Town, WV. This Business is called Sharp Cutz Barber Shop. Sharp Cutz is surrounded by several different types of businesses such as schools, grocery, and retail stores. Sharp Cutz was owned by a different barber previously, but the owner moved to a different part of the State to resume his business. Sharp Cutz is owned and operated by a single individual and offers competitive prices when compared to similar businesses in the area. Business at Sharp Cutz is good. The Business is making a profit of 2,000 dollars a month on average after expenses. I feel that the business could generate at least double of what it is currently making if the owner incorporated advertising and other marketing strategies to promote his business. Sharp Cutz gets most of its business through word of mouth, which is great for the business. Sharp Cutz serves all cultural groups and provides quality services such as haircuts, shape ups, beard trims, mustache trims, and razor shaving. Also the company is advertising for a hair stylist to serve women of all ethnic groups to expand its business. From my point of view; from being a long term customer, these are some of the issues and dissatisfactions that I have had with the business throughout the years: Inconsistency...
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...Harvard Business Review, 1980. This diagram has been recreated by LMC. LMC explains Porter's Five Forces and Profitability A business strategy tool designed to analyse a strategic business unit and its relationship with and competition within the industry. Using five key areas affecting profitability, the results give a company insight into its industry attractiveness. The five forces are identified as: bargaining power of suppliers, bargaining power of buyers, threat of new entrants, threats from substitute products and competitive rivalry. Each force is analysed in terms of whether it will produce higher or lower profitability if its effects are felt. 1. Bargaining power of suppliers This will be high or strong where there are relatively few individuals holding the power, where the costs of changing suppliers are high, or if the supplier has a strong brand. 2. Bargaining power of buyers This will be strong where market share is controlled by few buyers, for example large supermarket chains in the groceries market, or if the costs of switching supplier are low. 3. Threat of new entrants There can be various barriers to new entrants and if these are present then the threat from the entrant will be low. They include upfront capital investment, the time it takes to establish in the market, government legislation and hostile reactions from existing market players. 4. Threats from substitute product New products can negate the need for or replace an existing product...
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...Professor: Angela Harris Business 402- Small Business Management May 1, 2015 The small business that I chose to compete with is a beauty shop that I visit weekly. This beauty shop is located in the city of Dale City, VA. This Business is called Images Beauty Shop. Images Beauty Shop is surrounded by several different types of businesses such as schools, grocery, and a few other retail stores. Images Beauty Shop was owned by older women previously, but the owner moved to a different part of the State to resume her business. Images Beauty Shop is now owned and operated by a single individual and offers competitive prices when compared to similar businesses in the area. Business at Images is great. The Business is making a profit of 4,000 dollars a month on average after expenses. I feel that the business could generate at least double what it is currently making if the owner would incorporate advertising and other marketing strategies to promote the business. Images get most of its business through word of mouth, which is great for the business. Images provides serives all cultural groups and provides quality services such as haircuts, shampooing, wash and sets, relaxers, and hair coloring. Also the company is advertising for at least 2 more hair stylist to serve women of all ethnic groups to expand its business. From my point of view; from being a long term customer, these are some of the issues and dissatisfactions that I have had with the business throughout the years:...
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