Chapter 4
LESSONS
4.1
Run an Existing Business
4.2
Own a Franchise or Start a
Business
4.3
Choose the Legal Form of Your
Business
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Chapter 4
Slide 2
Lesson 4.1
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.
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ADVANTAGES OF BUYING
AN EXISTING BUSINESS
 The existing business already has customers, suppliers, and procedures.
 The seller of a business may train a new owner.
 There are prior records of revenues, expenses, and profits.
 Financial arrangements can be easier.
Chapter 4
Slide 3
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DISADVANTAGES OF BUYING
AN EXISTING BUSINESS
 Many businesses are for sale because they are not making a profit.
 Serious problems may be inherited.
 Capital is required.
Chapter 4
Slide 4
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Chapter 4
Slide 5
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
ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

ENTER A FAMILY BUSINESS
 Advantages of a family business
 Disadvantages of a family business
Chapter 4
Slide 6
ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

Lesson 4.2
OWN A FRANCHISE
OR START A BUSINESS
GOALS  Evaluate franchise ownership.
 Recognize the advantages and disadvantages of starting a new business.
Chapter 4
Slide 7
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Chapter 4
Slide 8
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.
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Chapter 4
Slide 9
OPERATING COSTS OF A FRANCHISE
 Initial franchise fee
 Start-up costs
 Royalty fees
 Advertising fees
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ADVANTAGES
OF OWNING A FRANCHISE
 An entrepreneur is provided with an established product or service.
 Franchisors offer management, technical, and other assistance.
 Equipment and supplies can be less expensive.
 A guarantee of consistency attracts customers.
Chapter 4
Slide 10
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DISADVANTAGES
OF OWNING A FRANCHISE
 Franchises can cost a lot of money and cut down on profits.
 Owners of franchises have less freedom to make decisions than other entrepreneurs.
 Franchisees are dependent on the performance of other franchisees in the chain.
 The franchisor can terminate the franchise agreement.
Chapter 4
Slide 11
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Chapter 4
Slide 12
EVALUATING A FRANCHISE
 Demand for product or service
 Exclusive territory
 Costs
 Profitability
 Longevity
 Services provided by franchisor
 Loss of independence
 Cancellation
ENTREPRENEURSHIP: Ideas in Action © SOUTH-WESTERN PUBLISHING

STARTING YOUR OWN BUSINESS
 Advantages of starting your own business
 Disadvantages of starting your own business
Chapter 4
Slide 13
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Lesson 4.3
CHOOSE THE LEGAL FORM
OF YOUR BUSINESS
GOALS  Evaluate the different legal forms for a business.
Chapter 4
Slide 14
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Chapter 4
Slide 15
TYPES OF BUSINESS
ARRANGEMENTS
 Sole proprietorship
 Partnership
 Corporation
 S corporation
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Chapter 4
Slide 16
SOLE PROPRIETORSHIP
 A business that is owned exclusively by one person is a sole proprietorship .
 Sole proprietorship is the most common form of ownership in the United States.
 Disadvantages
 Investment
 Risk
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Chapter 4
Slide 17
PARTNERSHIP
 Shared decisions
 Shared investment
 Shared risk
 Disadvantages
 Partnership agreement
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Chapter 4
Slide 18
CORPORATION
 Share of stock
 Board of directors
 Dividends
 Disadvantages
 Why incorporate?
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S CORPORATION
 An S corporation is a corporation organized under subchapter S of the
Internal Revenue Code whose income is taxed as a partnership.
Chapter 4
Slide 19
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Chapter 4
Slide 20
CHARACTERISTICS OF
THE LEGAL FORMS OF
BUSINESS
FEATURE
Simple to start
Decisions made by one person
Low initial cost
Limited liability
Limited government regulation
Ability to raise capital
Double taxation of profits
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