METHODS TO

INITIATE
VENTURES
Leoncio, Ma. Aira Grabrielle R.
Mamigo, Princess Nicole B.
G12- AB126
© 2009 South-Western, a part
of Cengage Learning. All rights
reserved.
 Chapter Objectives
1. To describe the major 1. To outline ten key questions
pathways and structures to ask when buying an
for entrepreneurial ongoing venture
ventures. 2. To define a franchise and
outline its structure
2. To present the factors
involved in creating a new
venture 6. To examine the benefits and
drawbacks of franchising
3. To identify and discuss
7. To present the UFOC
the elements involved in
(Uniform Franchise Offering
acquiring an established Circular) as a key item in
venture franchises

2
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 The Pathways to
New Ventures
for Entrepreneurs

3
Creating the Acquiring an
New Venture Existing Venture

Pathways to
New Ventures

Obtaining a
Franchise
 Creating New Ventures
Approaches
New-New New-Old
Approach to Creating a Approach
New Venture

5
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Table
6.1 Trends Creating Business Opportunities
Emerging Opportunities
Green Products Health Care Niche Consumables Home Automation and
Organic foods Healthy food Wine Media Storage
Organic fibers/textiles School and govt.- Chocolate Lighting control
Alternative Energy sponsored programs Burgers Security systems
Solar Exercise Coffee houses Energy management
Biofuel Yoga Exotic salads Comfort management
Fuel cells Niche gyms Entertainment systems
Energy conservation Children Networked kitchen
Nonmedical appliances
Pre-assisted living
Assisted living transition
services

Emerging Internet Opportunities Emerging Technology Opportunities

Mobile Advertising Virtual Economies Nanotechnology
Cell phones Online auctions Wireless Technology
PDAs Educational Tutoring
Concierge Services Human Resources Services
Niche Social Networks Matchmaking
Seniors Virtual HR
Music fans Online Staffing
Groups of local users
Pet owners
Dating groups

Source: Steve Cooper, Amanda C. Kooser, Kristin Ohlson, Karen E. Spaeder,

Nichole L. Torres, and Sara Wilson, “2007 Hot List,” Entrepreneur (December
2006): 80–93. 6
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Figure
6.1 Sources of New Business Ideas Among Men and Women

7
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Examination of the Financial Picture
￮ Upside gain and downside loss expectations
￮ The profits the business can make and the losses it can suffer.
￮ How much money will the enterprise take in if all goes well?
￮ How much will it gross if operations run as expected?
￮ How much will it lose if operations do not work out well?

￮ Risk vs. reward analysis

￮ Points out the importance of getting an adequate return on the
amount of money risked.

8
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Acquisition of a
Business Venture
Personal
Preferences

Examination of Acquiring a Evaluation of

Opportunities the Venture
Business Venture

Asking Key
Questions
9
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Less Fear about
Purchasing
Successful Reduced Time
at a Good
Future and Effort
Operation Price

Buying an
Ongoing
Venture
10
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Evaluation of the Selected
Venture
Factors
Affecting
Sale of the
Venture

The Business Assets of

Environment the Venture
Profits, Sales,
and Operating
Ratios 11
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
 Negotiating the Deal
Information

Factors
Time Affecting Pressure
Negotiations

Alternatives 12
© 2009 South-Western, a part of Cengage Learning. All rights reserved.
> Request that the seller retain a minority interest
in the business or make the final purchase price
dependent on the performance of the business
over a three-to-five-year span.
> Be wary of any promises made without written
corroboration.
> Spend time reconstructing financial statements
to determine how much cash is actually available.
> Interview the owner, vendors, competitors,
customers, and employees.

13
Franchising: The Hybrid
Franchising
> Any arrangement in which the
owner of a trademark, trade name, or
copyright has licensed others to use it in
selling goods or services.
Franchisee
> A purchaser of a franchise
Franchisor
> The seller of the franchise

14
Franchising
￮ Advantages ￮ Disadvantages
￮ Training and guidance ￮ Franchise fees
￮ Brand-name appeal ￮ Franchisor control
￮ A proven track record ￮ Unfulfilled promises of
￮ Financial assistance franchisor

15
 1. The basic franchising fee
2. Insurance
3. Opening product inventory
4. Remodeling and leasehold
improvements.

The Cost of 5. Utility charges

6. Payroll
Franchising 7. Debt service
8. Bookkeeping and accounting
fees
9. Legal and professional fees
10. State and local licenses,
permits, and certificates

16
 Franchise Disclosure Document (FDD)
- Is divided into 24 items that
provide different segments of information
for prospective franchisees.

Franchise - Was developed to provide

guidance in complying with the Franchise
Disclosure Rule that requires franchisors to
Law make full presale
disclosure about their franchises.

17
 The Decision to Purchase a
Franchise: Process Model

Source: Patrick J. Kaufmann, “Franchising and the Choice of Self 18

Employment,” Journal of Business Venturing, 14(4): 1999: 348.
Evaluating Franchising Opportunities
The Franchise
Opportunity
Decision

Finding Investigating Seeking

Reliable the Professional
Information Franchisor Help 19
Key Terms and Concepts
￮ business broker new-old approach
￮ franchise non-compete clause
risk vs. reward
￮ franchisee
￮ franchise fee
￮ franchisor
￮ franchisor control
￮ goodwill
￮ legal restraint of trade
￮ new-new approach

20
 QUIZ
Identification
1. It is a new business that is formed with a plan and expectation that financial gain will follow. ... As
the business gets off its feet, additional investors may become involved by providing support and
capital to expand development and marketing of the venture.
2. Specific likes and dislikes of an individual human. Special attention should be paid to each
individual’s preferences, as they can have a large influence on the decisions that person makes and
how they behave. Over the course of time, seemingly minor personal preferences can have a
great impact on the character of your expedition.
3. To ask someone questions in a very direct way, because you disagree with them and you want them
to explain their opinions or behaviour.
4. The seller of the franchise
5. Any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to
use it in selling goods or services.

Enumeration:
Give the 3 advantage and 2 disadvantage of franchising

21