Just In Time (JIT) has been referred to as an inventory control system in which inventory is purchased only as needed to meet actual customer demand. It is said to be a demand-driven inventory system designed to reduce inventory carrying costs to the lowest possible working levels. In practice, JIT is more of a holistic management system aimed at reducing waste, maximizing cost efficiency, and securing a competitive advantage.
This concept was originally developed in Japan in the mid-1970s by the Toyota Motor Corporation. In fact, many firms continue to refer to JIT as the Toyota system. The concept emphasized the avoidance of waste (of materials, space, and labor). The JIT concept traditionally used by manufacturing firms has expanded to the merchandising environment. On line retail marketers of all sizes are able to stay competitive by employing this strategy.
A very important component of the JIT strategy is the supply chain management. A firm cannot implement a JIT system by itself; it must have the complete cooperation of its entire supply chain. The sheer amount of information that is needed for a JIT system to operate well demands partnerships to be formed and nurtured, almost to the point at which an entire supply chain operates as one firm.
Several advantages derive from its use, the most apparent being the reduction in carrying cost of inventory, the bulk of which is warehousing cost. Inventory cost and quantity are grossly reduced especially for the manufacturer who would usually maintain three classes of inventories: raw material, work in progress, and finished goods. Funds that were tied up in inventories can be used elsewhere, and space previously used, to store inventory can be put to other more productive uses.
The JIT model is a major enabler to Internet merchandising where even the smallest of sellers who does not have enough capital to keep unusually large of amount of inventory can meet clients needs within the time lag of order and delivery date.For the manufacturer, experts argue that the presence of inventories encourages inefficient and sloppy work, which in turn results in too many defects, while dramatically increasing the amount of time required to complete a product. They maintain that with JIT, defect rates are reduced, resulting in less waste and greater customer satisfaction. Because it applies a 'pull approach,' which means inventory is ordered on demand, the company is more responsive to short-term customer demand patterns.
One disadvantage of the JIT is the strong interdependence within members of the supply chain , because a weakness in the supply chain can be very costly to all linked to it. Businesses become vulnerable to the supply chain in emergency situations like interrupted supply lines, stock outs and unforeseen production interruptions. The entire supply chain is quickly disrupted. Technology plays a key role in JIT because of the need for excellent communication, however the reliance on technology can lead to breakdowns in the IT systems that can be extremely costly to the business.
It is obvious that because of the great benefits of JIT, which far outweigh its disadvantages, more companies of varying size have adopted it. Responsibility is placed on the users to reduce the risks associated with the failure of the supply chain management and information technology systems.
Sources
http://www.referenceforbusiness.com/management/Int-Loc/Lean-Manufacturing-and-Just-in-Time-Production.html
http://www.academicmind.com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management.html
http://www.accountingformanagement.com/just_in_time.htm#Disadvantages of Just in Time Manufacturing System:
Thursday, August 26, 2010
Effect of high tech on selling opportunities for the small business
'High tech' refers to highly advanced technological development especially in electronics, or the use of computers, to accomplish everyday tasks. High tech has no doubt had a revolutionary effect on the conduct of international trade and small businesses have not been left out. Every aspect of business has been affected from customer relations management to procurement, production, inventory management, sales, distribution, payment and marketing. Earlier in the high tech revolution most of the opportunities were only available to large companies due to cost, but continuous advancement has driven down the costs making it available to even the smallest of businesses. High tech facilitates small businesses in two basic ways; through e-business and e-commerce.
E-business is the transformation of an organization’s processes to deliver additional customer value through the application of technologies and computing. Three primary processes are enhanced, namely: production processes, customer focused , processes and internal management processes. Production processes, include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes. Customer-focused processes, include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support. Internal management processes, include employee services, training, internal information-sharing, video-conferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity. Work group communications and electronic publishing of internal business information are likewise made more efficient.
In e-commerce, information and communications technology (ICT) is used in inter-business or inter-organizational transactions (B2B), transactions between and among organizations and in business-to-consumer transactions (B2C), transactions between organizations and individuals.
E-business and E-commerce now within reach of small businesses entrepreneurs have facilitated international selling opportunities for small businesses. We shall mention a few specific instances.
With the use of the Internet, market research and analysis has been made available to the small business who can now cheaply and easily find suppliers, manufacturers, financiers, buyers and new business opportunities. These may be located anywhere on the globe.
At the other end of the spectrum, technology has provided ample low cost advertising for small business giving them a global advertising reach hitherto available for million dollar budgets. Apart from the use of web sites to feature services and products (like the advertising pages of a newspaper), more effective marketing that targets the ideal client can be carried out because the small business can obtain specific need information of its prospect. This magnifies marketing effort and result.
Technology has made available powerful customer relationship and database management tools. The small business without having a large marketing department can manage their client base and effectively sell to a global market based on need and preference.
Handling payments across country borders with diverse currencies always posed a major barrier to the small business. With the advent of technology-enabled pay systems like Paypal, selling internationally becomes more attractive to small business as the prohibitive cost of international banking is eliminated.
High tech trading platforms like Alibaba and Amazon, have provided the small business a 'credibility cover' which greatly enhances their ability to sell internationally. Take for instance a local bookseller who operates out of his home. A buyer may never buy from him simply because he has not built trust. But the buyer will be willing to part with his money to Amazon, because the known name gives authenticity to the transaction.
Technology driven supply chain means small businesses even without physical presence in a country can fulfill client orders by relying on trusted supply chain partnerships, using technology to tackle worldwide distribution.
Effectively high tech has opened up to the small business a market potential which until now was only available to large players with the capital to have physical presence around the globe.
Sources
http://www.apdip.net/publications/iespprimers/eprimer-ecom.pdf
E-business is the transformation of an organization’s processes to deliver additional customer value through the application of technologies and computing. Three primary processes are enhanced, namely: production processes, customer focused , processes and internal management processes. Production processes, include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes. Customer-focused processes, include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support. Internal management processes, include employee services, training, internal information-sharing, video-conferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity. Work group communications and electronic publishing of internal business information are likewise made more efficient.
In e-commerce, information and communications technology (ICT) is used in inter-business or inter-organizational transactions (B2B), transactions between and among organizations and in business-to-consumer transactions (B2C), transactions between organizations and individuals.
E-business and E-commerce now within reach of small businesses entrepreneurs have facilitated international selling opportunities for small businesses. We shall mention a few specific instances.
With the use of the Internet, market research and analysis has been made available to the small business who can now cheaply and easily find suppliers, manufacturers, financiers, buyers and new business opportunities. These may be located anywhere on the globe.
At the other end of the spectrum, technology has provided ample low cost advertising for small business giving them a global advertising reach hitherto available for million dollar budgets. Apart from the use of web sites to feature services and products (like the advertising pages of a newspaper), more effective marketing that targets the ideal client can be carried out because the small business can obtain specific need information of its prospect. This magnifies marketing effort and result.
Technology has made available powerful customer relationship and database management tools. The small business without having a large marketing department can manage their client base and effectively sell to a global market based on need and preference.
Handling payments across country borders with diverse currencies always posed a major barrier to the small business. With the advent of technology-enabled pay systems like Paypal, selling internationally becomes more attractive to small business as the prohibitive cost of international banking is eliminated.
High tech trading platforms like Alibaba and Amazon, have provided the small business a 'credibility cover' which greatly enhances their ability to sell internationally. Take for instance a local bookseller who operates out of his home. A buyer may never buy from him simply because he has not built trust. But the buyer will be willing to part with his money to Amazon, because the known name gives authenticity to the transaction.
Technology driven supply chain means small businesses even without physical presence in a country can fulfill client orders by relying on trusted supply chain partnerships, using technology to tackle worldwide distribution.
Effectively high tech has opened up to the small business a market potential which until now was only available to large players with the capital to have physical presence around the globe.
Sources
http://www.apdip.net/publications/iespprimers/eprimer-ecom.pdf
The decision to lend or not to lend: The 4 'Cs' of Credit
The practice of lending has been in existence for centuries, and has been guided by what is popularly known as the ‘4 Cs of credit’. This refers to the basic factors that lenders consider among other things in extending credit to companies or individuals.
The four Cs are: character, capacity, capital and collateral . Condition has on occasion been added to the list as the fifth ‘c’ of lending.
Character is determined by looking at what kind of "financial citizen" the intended borrower is. This is determined by looking at the borrower’s history of meeting financial obligations. Credit history provides a picture of how the business or its promoters have handled previous financial dealings, the existence of civil judgments against them, unpaid tax liabilities, liens against their assets, or if the business or its owner has filed for bankruptcy protection. It may well include experience in business and industry; the quality of references as well as the background and experience levels of employees. Albeit, character is a subjective opinion, and certainly the least quantifiable of the ‘Cs’. Yet it is important and shows whether or not borrower is sufficiently trustworthy to repay the loan. It also demonstrates integrity and credibility, among other things, and can reveal intent.
Capital is the portion of the total cost of required investment which must be contributed by the borrower. It is money personally invested by prospective borrower in his/her business. This is a measure to assure the lender of the business owner’s commitment as well as reduce the lender’s exposure to loss. Lender’s capital requirement is determined by the nature of business, level of perceived risk, availability and value of borrower’s collateral.
Collateral or guarantee is additional form of security provided by the borrower as a secondary source of repayment. Collateral usually is a tangible asset owned by borrower, while a guarantee is just that someone else who signs a guarantee document promising to repay the loan if borrower is unable to).
Capacity refers to the ability of the business to repay the loan on agreed terms from revenue generated from its operations in the normal course of business. This is cash flow from excess of income over expenses. To the lender, this represents the primary source of repayment for the loan, liquidation of collateral is never considered a primary source of repayment and lenders only revert to it as a last resort. There are several indicators of capacity to generate cash for repayment. the financial statement is a valuable source of information to determine capacity through calculation of key indices like: Earning before interest; tax; depreciation and amortization (EBITDA); debt service coverage ratio(DSCR); liquidity; profitability; trading cycle and other sales and asset turnover ratios; debt equity ratio and the changes in cash position from the cash flow statement. In addition, factors like the firm’s position in the market, experience in the industry, and track record in business will determine, in the lender’s eyes, if the borrower is a qualified candidate.
Condition refers to the national and local economy, the industry and the lending institution’s current level of losses and problem credits. Here the lender is looking out for interest rate, trends in industry, consumer purchasing power, economic cycle, recession or expansion to determine how these factors would affect the business.
How important a particular 'C' is to the lender is often times dictated by prevailing economic conditions as well as the lenders financial position and the comfort level that can be forged between the two sides. Character for one is often the forgotten ‘C’ during good economic times. For instance, in the days of easy credit of the past decade, banks were willing to extend credit even with borrower’s poor credit rating. 'No documentation loans' became very popular where the borrower revealed little information about him/herself. From the lender’s viewpoint, the single most important of the ‘Cs’ of credit is probably capacity, because the ultimate goal of the lender in extending credit is to receive repayment which preserves the lender’s capital and allows him/her to remain in business. The collateral is at best a tertiary source of repayment. Majority of lenders would rather not be involved with collateral liquidation as this is not their primary business and the financial reporting requirements make the reporting of non-performing assets an unattractive item. Character, though an excellent portrayal of past behavior and an indicator of intent, is not an assurance of future capacity to repay, as borrower’s circumstances do change. A downturn in the economic climate can lead to poor product or service performance or financial structure all of which can impair a business's ability to repay it debts. A combination of all five ‘Cs’ certainly provides a superior measure for appraising lending decisions.
The importance of the 'Cs' from the borrower 's viewpoint is a function of the financial capacity of the borrower and the nature of the project to be funded. For the brand new product launch it may be impossible to objectively determine the acceptability of the product or service, and hence its capacity to generate cash inflow. Therefore the business owner is unable to demonstrate capacity in an objective manner. Nevertheless, the lender may decide on the strength of character and collateral to extend the credit facility.
Sources
http://biztaxlaw.about.com/od/financingyourstartup/a/4csofcredit.htm
http://www.loanuniverse.com/credit.html
http://www.finweb.com/loans/the-five-cs-of-lending.html
The four Cs are: character, capacity, capital and collateral . Condition has on occasion been added to the list as the fifth ‘c’ of lending.
Character is determined by looking at what kind of "financial citizen" the intended borrower is. This is determined by looking at the borrower’s history of meeting financial obligations. Credit history provides a picture of how the business or its promoters have handled previous financial dealings, the existence of civil judgments against them, unpaid tax liabilities, liens against their assets, or if the business or its owner has filed for bankruptcy protection. It may well include experience in business and industry; the quality of references as well as the background and experience levels of employees. Albeit, character is a subjective opinion, and certainly the least quantifiable of the ‘Cs’. Yet it is important and shows whether or not borrower is sufficiently trustworthy to repay the loan. It also demonstrates integrity and credibility, among other things, and can reveal intent.
Capital is the portion of the total cost of required investment which must be contributed by the borrower. It is money personally invested by prospective borrower in his/her business. This is a measure to assure the lender of the business owner’s commitment as well as reduce the lender’s exposure to loss. Lender’s capital requirement is determined by the nature of business, level of perceived risk, availability and value of borrower’s collateral.
Collateral or guarantee is additional form of security provided by the borrower as a secondary source of repayment. Collateral usually is a tangible asset owned by borrower, while a guarantee is just that someone else who signs a guarantee document promising to repay the loan if borrower is unable to).
Capacity refers to the ability of the business to repay the loan on agreed terms from revenue generated from its operations in the normal course of business. This is cash flow from excess of income over expenses. To the lender, this represents the primary source of repayment for the loan, liquidation of collateral is never considered a primary source of repayment and lenders only revert to it as a last resort. There are several indicators of capacity to generate cash for repayment. the financial statement is a valuable source of information to determine capacity through calculation of key indices like: Earning before interest; tax; depreciation and amortization (EBITDA); debt service coverage ratio(DSCR); liquidity; profitability; trading cycle and other sales and asset turnover ratios; debt equity ratio and the changes in cash position from the cash flow statement. In addition, factors like the firm’s position in the market, experience in the industry, and track record in business will determine, in the lender’s eyes, if the borrower is a qualified candidate.
Condition refers to the national and local economy, the industry and the lending institution’s current level of losses and problem credits. Here the lender is looking out for interest rate, trends in industry, consumer purchasing power, economic cycle, recession or expansion to determine how these factors would affect the business.
How important a particular 'C' is to the lender is often times dictated by prevailing economic conditions as well as the lenders financial position and the comfort level that can be forged between the two sides. Character for one is often the forgotten ‘C’ during good economic times. For instance, in the days of easy credit of the past decade, banks were willing to extend credit even with borrower’s poor credit rating. 'No documentation loans' became very popular where the borrower revealed little information about him/herself. From the lender’s viewpoint, the single most important of the ‘Cs’ of credit is probably capacity, because the ultimate goal of the lender in extending credit is to receive repayment which preserves the lender’s capital and allows him/her to remain in business. The collateral is at best a tertiary source of repayment. Majority of lenders would rather not be involved with collateral liquidation as this is not their primary business and the financial reporting requirements make the reporting of non-performing assets an unattractive item. Character, though an excellent portrayal of past behavior and an indicator of intent, is not an assurance of future capacity to repay, as borrower’s circumstances do change. A downturn in the economic climate can lead to poor product or service performance or financial structure all of which can impair a business's ability to repay it debts. A combination of all five ‘Cs’ certainly provides a superior measure for appraising lending decisions.
The importance of the 'Cs' from the borrower 's viewpoint is a function of the financial capacity of the borrower and the nature of the project to be funded. For the brand new product launch it may be impossible to objectively determine the acceptability of the product or service, and hence its capacity to generate cash inflow. Therefore the business owner is unable to demonstrate capacity in an objective manner. Nevertheless, the lender may decide on the strength of character and collateral to extend the credit facility.
Sources
http://biztaxlaw.about.com/od/financingyourstartup/a/4csofcredit.htm
http://www.loanuniverse.com/credit.html
http://www.finweb.com/loans/the-five-cs-of-lending.html
The Scope of Fraud on Small Business - What Owners can do to prevent it
Fraud simply defined is a deception made for personal gain. Occupational fraud specifically, is the use of one’s occupation or position for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. It includes embezzlement, the act of dishonestly appropriating goods, usually money, by one to whom they have been entrusted.
In its 2010 report, the Association of Certified Fraud Examiners (ACFE) stated that small organizations are disproportionately victimized by occupational fraud. Small organizations (those with fewer than 100 employees) suffered the greatest percentage of the frauds in the 2010 study, accounting for more than 30% of the victim organizations. The situation is aggravated by the fact that these are the very organizations that can hardly afford the loss.
The cost to small business extends beyond the loss of money to include: the distraction to the business, its employees, owners and others involved with the business. Lost productivity reflected in the cost to replace a once trusted and valued employee, as well as the recruitment and training of new personnel is an additional cost. In many cases, the cost of aggregating information to provide to authorities for prosecution escalates this further. Due to their limited capital, and the fact that many small businesses do not carry employee theft insurance, the impact of fraud is more severe.
Small businesses are particularly vulnerable because, in most cases, they have far fewer controls in place to protect their resources from fraud and abuse. They often employ friends, family members, and ‘trusted individuals’ who are subsequently entrusted with more responsibility and greater authority because the financial resources do not exist to spread the responsibility and authority by hiring more people. Essentially, small businesses are not large enough to provide adequate division of duties and a system of checks and balances; the classic "lack of segregation of duties" situation which is critical to internal control.
The scope of fraud often includes asset misappropriation. This involves the theft or misuse of organization’s assets, where the perpetrator wrongfully uses their influence in a business transaction to procure fraudulent statements and benefit for themselves. Other more frequent types of fraud include: falsification of expense claims, (i.e claims made for expenses never incurred); stealing money from the company’s bank account; falsifying supplier invoices possibly through collusion with supplier; theft of stock and raw materials. Others are transactions not conducted at 'arms length' where the purchaser bribes the salesman in return for a favorable contract and personal gain; fictitious invoicing (i. e. arranging for invoices for services never delivered) from connected parties to be passed for payment; acquisition of company property at less than market value which is then resold at a higher price.
Given the high costs of occupational fraud, effective fraud prevention measures are critical.
Personal policies that help prevent fraud should be implemented. At hiring, a background check is of utmost importance as many perpetrators are often repeat offenders. Creating a work culture that values honesty and integrity with a zero tolerance for fraud by prosecuting offenders is essential. It will also serve the small business well to educate employees to be on the alert for fraud as well as put in place an effective fraud reporting system that protects the whistle blower. A study by the ACFE shows that tips resulted in discovering fraud more often than any other source. Additionally, employees who handle certain high risk financial assets should be bonded.
Audits are an essential tool in fraud detection and prevention. Surprise audits have proved especially effective in fraud detection. Such audits should be unannounced. Periodic audits should also be carried out. Interim audits should include inventory audits. Having a CPA conduct periodic reviews of the company's internal controls is good practice.
Accounting controls are another important aspect of safeguarding against fraud. Monitoring of the financial statements and management reports can provide clues to the possibility of fraud. Variances in account metrics and analysis, could well be a pointer to fraud
In addition strong anti-fraud controls should be established and monitored to see that they are operating effectively. These should include: proper separation of duties, use of authorizations, personnel job rotations and mandatory vacations, physical safeguards of assets. Video surveillance systems can be very effective in detecting and preventing theft and fraud. The business should provide specific instructions to its bankers on policies surrounding disbursement of cash.
However, as no system of controls is so perfect that theft cannot occur, carrying adequate employee theft insurance is an economical way to mitigate the effects of losses.
In conclusion, while it may not be possible to completely eliminate fraud, an effort to prevent it should be vigorously pursued.
Sources
http://www.gaebler.com/Small-Business-Fraud.htm
http://www.acfe.com/resources/view.asp?ArticleID=430
http://www.acfe.com/rttn/2010-conclusions.asp
In its 2010 report, the Association of Certified Fraud Examiners (ACFE) stated that small organizations are disproportionately victimized by occupational fraud. Small organizations (those with fewer than 100 employees) suffered the greatest percentage of the frauds in the 2010 study, accounting for more than 30% of the victim organizations. The situation is aggravated by the fact that these are the very organizations that can hardly afford the loss.
The cost to small business extends beyond the loss of money to include: the distraction to the business, its employees, owners and others involved with the business. Lost productivity reflected in the cost to replace a once trusted and valued employee, as well as the recruitment and training of new personnel is an additional cost. In many cases, the cost of aggregating information to provide to authorities for prosecution escalates this further. Due to their limited capital, and the fact that many small businesses do not carry employee theft insurance, the impact of fraud is more severe.
Small businesses are particularly vulnerable because, in most cases, they have far fewer controls in place to protect their resources from fraud and abuse. They often employ friends, family members, and ‘trusted individuals’ who are subsequently entrusted with more responsibility and greater authority because the financial resources do not exist to spread the responsibility and authority by hiring more people. Essentially, small businesses are not large enough to provide adequate division of duties and a system of checks and balances; the classic "lack of segregation of duties" situation which is critical to internal control.
The scope of fraud often includes asset misappropriation. This involves the theft or misuse of organization’s assets, where the perpetrator wrongfully uses their influence in a business transaction to procure fraudulent statements and benefit for themselves. Other more frequent types of fraud include: falsification of expense claims, (i.e claims made for expenses never incurred); stealing money from the company’s bank account; falsifying supplier invoices possibly through collusion with supplier; theft of stock and raw materials. Others are transactions not conducted at 'arms length' where the purchaser bribes the salesman in return for a favorable contract and personal gain; fictitious invoicing (i. e. arranging for invoices for services never delivered) from connected parties to be passed for payment; acquisition of company property at less than market value which is then resold at a higher price.
Given the high costs of occupational fraud, effective fraud prevention measures are critical.
Personal policies that help prevent fraud should be implemented. At hiring, a background check is of utmost importance as many perpetrators are often repeat offenders. Creating a work culture that values honesty and integrity with a zero tolerance for fraud by prosecuting offenders is essential. It will also serve the small business well to educate employees to be on the alert for fraud as well as put in place an effective fraud reporting system that protects the whistle blower. A study by the ACFE shows that tips resulted in discovering fraud more often than any other source. Additionally, employees who handle certain high risk financial assets should be bonded.
Audits are an essential tool in fraud detection and prevention. Surprise audits have proved especially effective in fraud detection. Such audits should be unannounced. Periodic audits should also be carried out. Interim audits should include inventory audits. Having a CPA conduct periodic reviews of the company's internal controls is good practice.
Accounting controls are another important aspect of safeguarding against fraud. Monitoring of the financial statements and management reports can provide clues to the possibility of fraud. Variances in account metrics and analysis, could well be a pointer to fraud
In addition strong anti-fraud controls should be established and monitored to see that they are operating effectively. These should include: proper separation of duties, use of authorizations, personnel job rotations and mandatory vacations, physical safeguards of assets. Video surveillance systems can be very effective in detecting and preventing theft and fraud. The business should provide specific instructions to its bankers on policies surrounding disbursement of cash.
However, as no system of controls is so perfect that theft cannot occur, carrying adequate employee theft insurance is an economical way to mitigate the effects of losses.
In conclusion, while it may not be possible to completely eliminate fraud, an effort to prevent it should be vigorously pursued.
Sources
http://www.gaebler.com/Small-Business-Fraud.htm
http://www.acfe.com/resources/view.asp?ArticleID=430
http://www.acfe.com/rttn/2010-conclusions.asp
Franchising
Difference between a franchisee and a company owned store within a franchise chain?
A franchisee is an individual who runs an independent business using the intellectual property of a franchisor. The franchisee purchases the rights to use a company’s trademarked name and business model to do business, and must follow certain rules and guidelines already established by the franchisor, and in most cases pay an ongoing franchise royalty fee to the franchisor.
A company owned store within a franchise chain is a store that is franchisor
owned and operated. It is run by the franchisor's employees, in contrast to a franchisee store which is an independent business. Both stores would look same to customer, sell the same products and services, use the same business model, but the major difference is in the ownership. A franchisee may have some signage which indicates that it is independently owned and operated.
The major reason for their existence is that company owned stores allow a franchisor the ability to control and profit from a successful concept. They provide cash flow and a training facility to showcase the business for both the market and other franchisees. Company owned outlets enable franchisor to try new procedures and systems to improve the way things are done . These trials in company owned store ensure that problems are ironed out before new systems are rolled out to franchisees. Additionally they provide a healthy breeding ground for franchisor staff to grow and develop into highly knowledgeable support staff for franchisees which is a good thing for franchisees.
Franchisee vs the manager of a company owned store.
The manager of a company owned store is an employee of the franchisor as opposed to a franchisee who is an independent business owner. Being an franchisee might be more attractive for several reasons.
The scope of responsibility of a business owner exceeds that of a manager an is certainly more attractive to the entrepreneurial mind. Secondly the manager's income is limited to his salary and any bonuses or commissions as established by his employment contract, but the franchisee has unlimited income potential capped only by his ability to make profits.
What is typically provided by a franchisor to its franchisee?
A franchise typically provides a turnkey business; from site selection to lease negotiation, training, mentoring and ongoing support. Specifically a franchisor would provide the following:
Location selection. Some franchisors will help franchisees select a location for their franchisee using their data on viability and competition. Hopefully this will enhance profitability of franchise.
Training and Support. Most franchisors offer training prior to starting the business and ongoing administrative and technical support.
A detailed operations manual is usually provided which gives instructions for carrying out the business and establishes the rules, standards and specifications of the franchise.
Financial assistance. Not all franchisors offer financial assistance but some do have financing programs available to franchisees. This could take various forms including direct franchisor or third party financing.
Advertising. The franchisor may advertise on a scale which will be impossible for a small business' advertising budget.
Corporate image and brand awareness. The franchisee gains instant credibility and goodwill from customers which is an excellent kick start for any business.
Franchising offers an established business model which cuts down on the learning curve.
Though not specifically provided for, there is a wealth of experience amongst fellow franchisees who will gladly share their knowledge and advice additionally an established brand creates ease of raising funds
The contributions of franchisor are most valuable to a nascent entrepreneur as it eases the typical challenges encountered in a new business venture, it is his 'street business education,' shortens the learning curve and its attendant cost and takes a away years from the school of hard knocks which new businesses typically have to go through.
Franchise vs independent business failure rate?
Over the years, studies have emerged with opposing views when comparing “success rates” of franchising to independent business ownership. There is the general belief that failure rate of franchisees are lower. Logic lends credence to this position, because if franchising is simply about duplicating a proven system then it follows that failure rate must be low. However results of an SBA research elicits a different conclusion. The SBA reports, 'despite the popular view that franchisees are much more successful than non-franchisees, SBA’s experience with defaulted loans does not support this.'
Although not looking into franchisee success rates as the other studies did, Prof. Scott Shane conducted research (1997) shone a light on the high mortality of franchisors, revealing that 1,292 franchise brands studied between 1979 and 1996, only 15% of the franchisors lived to be 17 years old, a rate comparable to independent start-up failures.
Although common sense would suggest that failure rate is lower for franchisees because of reduced risk due to the fact of using an established system; the franchise fees, royalty payments and other requirements of the franchise agreement may have vitiated this very advantage.
Sources
http://www.franchise-chat.com/resources/franchise_versus_company_operations.htm
http://www.tannedfeet.com/buying_franchises.htm
http://www.free-legal-document.com/advantage-disadvantage-of-a-franchise.html
A franchisee is an individual who runs an independent business using the intellectual property of a franchisor. The franchisee purchases the rights to use a company’s trademarked name and business model to do business, and must follow certain rules and guidelines already established by the franchisor, and in most cases pay an ongoing franchise royalty fee to the franchisor.
A company owned store within a franchise chain is a store that is franchisor
owned and operated. It is run by the franchisor's employees, in contrast to a franchisee store which is an independent business. Both stores would look same to customer, sell the same products and services, use the same business model, but the major difference is in the ownership. A franchisee may have some signage which indicates that it is independently owned and operated.
The major reason for their existence is that company owned stores allow a franchisor the ability to control and profit from a successful concept. They provide cash flow and a training facility to showcase the business for both the market and other franchisees. Company owned outlets enable franchisor to try new procedures and systems to improve the way things are done . These trials in company owned store ensure that problems are ironed out before new systems are rolled out to franchisees. Additionally they provide a healthy breeding ground for franchisor staff to grow and develop into highly knowledgeable support staff for franchisees which is a good thing for franchisees.
Franchisee vs the manager of a company owned store.
The manager of a company owned store is an employee of the franchisor as opposed to a franchisee who is an independent business owner. Being an franchisee might be more attractive for several reasons.
The scope of responsibility of a business owner exceeds that of a manager an is certainly more attractive to the entrepreneurial mind. Secondly the manager's income is limited to his salary and any bonuses or commissions as established by his employment contract, but the franchisee has unlimited income potential capped only by his ability to make profits.
What is typically provided by a franchisor to its franchisee?
A franchise typically provides a turnkey business; from site selection to lease negotiation, training, mentoring and ongoing support. Specifically a franchisor would provide the following:
Location selection. Some franchisors will help franchisees select a location for their franchisee using their data on viability and competition. Hopefully this will enhance profitability of franchise.
Training and Support. Most franchisors offer training prior to starting the business and ongoing administrative and technical support.
A detailed operations manual is usually provided which gives instructions for carrying out the business and establishes the rules, standards and specifications of the franchise.
Financial assistance. Not all franchisors offer financial assistance but some do have financing programs available to franchisees. This could take various forms including direct franchisor or third party financing.
Advertising. The franchisor may advertise on a scale which will be impossible for a small business' advertising budget.
Corporate image and brand awareness. The franchisee gains instant credibility and goodwill from customers which is an excellent kick start for any business.
Franchising offers an established business model which cuts down on the learning curve.
Though not specifically provided for, there is a wealth of experience amongst fellow franchisees who will gladly share their knowledge and advice additionally an established brand creates ease of raising funds
The contributions of franchisor are most valuable to a nascent entrepreneur as it eases the typical challenges encountered in a new business venture, it is his 'street business education,' shortens the learning curve and its attendant cost and takes a away years from the school of hard knocks which new businesses typically have to go through.
Franchise vs independent business failure rate?
Over the years, studies have emerged with opposing views when comparing “success rates” of franchising to independent business ownership. There is the general belief that failure rate of franchisees are lower. Logic lends credence to this position, because if franchising is simply about duplicating a proven system then it follows that failure rate must be low. However results of an SBA research elicits a different conclusion. The SBA reports, 'despite the popular view that franchisees are much more successful than non-franchisees, SBA’s experience with defaulted loans does not support this.'
Although not looking into franchisee success rates as the other studies did, Prof. Scott Shane conducted research (1997) shone a light on the high mortality of franchisors, revealing that 1,292 franchise brands studied between 1979 and 1996, only 15% of the franchisors lived to be 17 years old, a rate comparable to independent start-up failures.
Although common sense would suggest that failure rate is lower for franchisees because of reduced risk due to the fact of using an established system; the franchise fees, royalty payments and other requirements of the franchise agreement may have vitiated this very advantage.
Sources
http://www.franchise-chat.com/resources/franchise_versus_company_operations.htm
http://www.tannedfeet.com/buying_franchises.htm
http://www.free-legal-document.com/advantage-disadvantage-of-a-franchise.html
Impact of life events on small business success.
To a large extent, barring other external prevailing conditions, the success of a small business hinges very much on the adroitness and character of the entrepreneur. Like other skills, the adeptness of the entrepreneur comes about through a combination of life events which we will refer to as 'influences.' Four of these influences being life experiences, parental influence, career displacement and education. All of these have differing capacity to mold the entrepreneur and hence influence his/her success level.
Parental influence no doubt has a great impact on business success. The entrepreneurial world-view is radically different from the employee mindset. While the employee longs for certainty, the entrepreneur is constantly in a risky environment with no assurance of a definite outcome. Switching between both worlds can prove to be a daunting feat. Hence wards with parents-biological or 'adopted' - who run a business, have less problem overcoming this barrier and therefore more likely to succeed in business. But like most other life phenomenon, despite the preponderance of evidence in support of this, the contrary does hold true also.
Laurel Donnell interviewed two successful entrepreneurs who have been influenced deeply by their parents in two very distinct ways. Sean Rosensteel 27, founder of SavvyPRO SEO, serial entrepreneur is in the midst of launching his fourth venture; his father was an entrepreneur. He embraced almost everything his parents had taught him, applied them and now enjoys tremendous business success. On the other hand, Alastair Ong is a maverick who was born into tradition; he learned from his family that a career is how you are defined. He appeased his parents by going to Fordham Law School and then he landed a job at a big firm. He later rejected their lessons to find his soul work by starting his own law partnership and becoming a serial entrepreneur whose ventures have included a winery and several technology companies.
Career displacement is a catalyst that has birthed several viable and successful businesses; a well known example being the birth of Home Depot in 1978. Bernie Marcus and Arthur Blank were fired after a disagreement with upper management. Throwing their lots together they opened their own home improvement store, based in Atlanta, Georgia. The Home Depot is the fastest growing retailer in US history. The 1980s and 1990s spawned tremendous growth for the company, with 1989 marking the celebration of its 100th store opening.
With globalization, fast changing business and technology landscapes, career displacement may be in fact one of the greatest catalyst to new ventures of the future. Though an unwelcome event for most, the need to prove their competence and financial survival in a dwindling job market; spurs many an ex-employee to start a business and do a great job of it, because they bring to the table their knowledge of the successes and failure of their previous employee.
Education is the act or process of acquiring knowledge, developing the powers of reasoning and judgment, and generally of preparing intellectually for life. It in do doubt has the greatest impact on business success of the four being discussed here. Formal education, a subset of education, has not proved to be an indicator of business success. It can rightly be called a 'license to learn' because it provides many skills that the non-educated entrepreneur will need to learn the hard way. But Small Business Owners and Entrepreneurs that continue to learn new and innovative techniques to differentiate themselves from their competition are generally more successful in growing their business, than those that offer the same old services that everyone else does.
Of the four 'influences' mentioned above, it is perhaps most difficult to determine the effect of life experiences on the success of a business; for the very reason of the human ability to make choices. When a person encounters a life experience they choose what to make of it. For the successful entrepreneur, usually they make a choice to turn every life experience into a business opportunity, a positive force for better decision making.
http://www.allbusiness.com/company-activities-management/company-structures/12948686-1.html
http://www.phillyperformancemagazine.com/caseystillman/caseys-blog/does-a-formal-education-guarantee-success-in-small-business
Parental influence no doubt has a great impact on business success. The entrepreneurial world-view is radically different from the employee mindset. While the employee longs for certainty, the entrepreneur is constantly in a risky environment with no assurance of a definite outcome. Switching between both worlds can prove to be a daunting feat. Hence wards with parents-biological or 'adopted' - who run a business, have less problem overcoming this barrier and therefore more likely to succeed in business. But like most other life phenomenon, despite the preponderance of evidence in support of this, the contrary does hold true also.
Laurel Donnell interviewed two successful entrepreneurs who have been influenced deeply by their parents in two very distinct ways. Sean Rosensteel 27, founder of SavvyPRO SEO, serial entrepreneur is in the midst of launching his fourth venture; his father was an entrepreneur. He embraced almost everything his parents had taught him, applied them and now enjoys tremendous business success. On the other hand, Alastair Ong is a maverick who was born into tradition; he learned from his family that a career is how you are defined. He appeased his parents by going to Fordham Law School and then he landed a job at a big firm. He later rejected their lessons to find his soul work by starting his own law partnership and becoming a serial entrepreneur whose ventures have included a winery and several technology companies.
Career displacement is a catalyst that has birthed several viable and successful businesses; a well known example being the birth of Home Depot in 1978. Bernie Marcus and Arthur Blank were fired after a disagreement with upper management. Throwing their lots together they opened their own home improvement store, based in Atlanta, Georgia. The Home Depot is the fastest growing retailer in US history. The 1980s and 1990s spawned tremendous growth for the company, with 1989 marking the celebration of its 100th store opening.
With globalization, fast changing business and technology landscapes, career displacement may be in fact one of the greatest catalyst to new ventures of the future. Though an unwelcome event for most, the need to prove their competence and financial survival in a dwindling job market; spurs many an ex-employee to start a business and do a great job of it, because they bring to the table their knowledge of the successes and failure of their previous employee.
Education is the act or process of acquiring knowledge, developing the powers of reasoning and judgment, and generally of preparing intellectually for life. It in do doubt has the greatest impact on business success of the four being discussed here. Formal education, a subset of education, has not proved to be an indicator of business success. It can rightly be called a 'license to learn' because it provides many skills that the non-educated entrepreneur will need to learn the hard way. But Small Business Owners and Entrepreneurs that continue to learn new and innovative techniques to differentiate themselves from their competition are generally more successful in growing their business, than those that offer the same old services that everyone else does.
Of the four 'influences' mentioned above, it is perhaps most difficult to determine the effect of life experiences on the success of a business; for the very reason of the human ability to make choices. When a person encounters a life experience they choose what to make of it. For the successful entrepreneur, usually they make a choice to turn every life experience into a business opportunity, a positive force for better decision making.
http://www.allbusiness.com/company-activities-management/company-structures/12948686-1.html
http://www.phillyperformancemagazine.com/caseystillman/caseys-blog/does-a-formal-education-guarantee-success-in-small-business
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