The Language of Small Business Texts and Vocabulary Training (for students of Economics) Part 1. Учебное пособие

Who will buy

2.an increase in price tends to reduce demand and to increase supply, and a fall in price tends to increase demand and to reduce supply;

3.a state of market equilibrium (balance) will tend to be reached, in which the supply equals the demand at an equilibrium price. There are a number of exceptions, but these happen usually in the short run.

Definitions of terms

Рыночные силы – условия, влияющие на спрос и пред- ложение на свободном рынке и определяющие цены; поведе- ние продавцов и покупателей, кредиторов и заемщиков.

Исследование рынка, конъюнктурные исследования –

анализ сложившегося состояния рынка, определение тенден- ций к его изменению; в ходе исследований анализируются рыночная стоимость и объем выпуска товаров, динамика из- менения производства на мировом рынке и в отдельных стра- нах, техническая политика, спрос на новые товары и органи- зация сбыта, ценообразование, экспорт и импорт, составляют- ся краткосрочные прогнозы.

Участник рынка – лицо, покупающее и продающее от имени своих клиентов, а также за свой собственный счет.

Тенденция рынка – основное направление в движении и развитииценнарынкебезучетакратковременныхколебаний.

Рыночная стоимость – текущая цена на товар, ценные бумаги, валюту; уровень цены, на котором они могут быть ку- плены или проданы; стоимость основных фондов.

Рынок покупателя – понижательная или низкая товар- ная конъюнктура рынка, когда предложение значительно превышает спрос, снижаются рыночные цены, сокращается число совершаемых сделок.

Рынок продавца – повышательная рыночная конъюнк- тура, когда спрос значительно превышает предложение, про- исходит рост цен и числа заключаемых сделок.

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The Language of Small Business

Summary

1.Нецеленаправленное исследование рынка бесполезно. Надо, чтобы оно концентрировалось на вопросах: кто будет покупать, почему они будут покупать и сколько они будут покупать.

2.Намного легче продавать товар, который отвечает уже сформировавшимся потребностям, чем пытаться обу- чить рынок покупать новый, может быть, и необыкно- венный товар или услугу.

3.Ищите на своем целевом рынке группы людей, кото- рым вы можете продавать товар либо потому, что ни- кто другой не продаст им его в данный момент, либо потому, что вы можете приспособить свой товар к их потребностям.

4.Рациональные и эмоциональные факторы влияют на желание вашего целевого рынка сделать покупки. Ис- следуйте их и подготовьте свой товар и свою торговую стратегию к этому.

5.Знание того, сколько покупатели купят, является чрез- вычайно существенным (решающим) для планирования бизнеса. Надо исследовать размер рынка, его структуру, долю на рынке, конкуренцию и рыночные тенденции.

6.Старайтесь проводить исследования рынка систематиче- ски с тем, чтобы вы могли их правильно анализировать. Работайте со справочной литературой, проводите ин- тервью и пробные продажи.

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Franchises

UNIT 3.

Franchises

It would be lovely if there were a way you could start your own business with a much greater chance of survival than most people. And this is just what is claimed by the franchising industry. The statistics seem to back this up, although they are rather patchy. What information is available suggests that a franchised business has a much greater chance of surviving the first three years (the danger years) than other new businesses.

Cleary you don't get something for nothing. The price of choosing the franchised route can be high, it is up to you to weigh up the costs of buying a franchise and the risks of starting from scratch.

Some of the costs are obvious: you may have to pay a lump sum at the outset as well as paying an amount each year to the person selling the franchise. Less obvious is the cost if you buy a franchise in which you have to buy products from the seller's company at a price determined by it; in this way, you cannot benefit from shopping around to buy your supplies at the cheapest possible price.

One of the economic theories behind the success of franchising is that the franchised business can earn for the product as a whole, higher-than-normal profits. The intention of the seller of the franchise is to cream off the above-normal bit of the profits, for example, by charging a percentage of sales each year, leaving only the normal bit of the profit for the person who buys the franchise. These higher-than-normal profits can build up a brand image for the product or business by carefully positioning the product in the market and using advertising and PR to promote it. In this way, the end-user of the product, the consumer, will pay higher prices than for an equivalent product.

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The Language of Small Business

If you think you can create the right image for your own business, franchising could be expensive for you. You might do better trying to go it alone and not seeking the apparent safety net of a franchise.

A Brief Guide to Franchises

This brief guide to a typical franchise describes what happens in the different stages of a well-organized and properly developed franchise; occasionally, there may be a franchise which is not developed in a model fashion and you should beware of buying one of these. Use the step-by-step guide to help you sort out the wheat from the chaff.

In the first step, a business is developed or set up. It could be based on a novel or revolutionary product, a comprehensive and well-organized business method, particular marketing style and so on. The business (or pilot) will have run for a couple of years, so that all initial problems have been sorted out. Preferably there should be more than one pilot, which demonstrates that the business idea can be repeated.

Next, the owner of the business (the franchisor) decides to expand, not necessarily by creating more branches but by selling franchises to the business format already developed in the pilot operation. Note that the two forms of expansion, selling franchises and opening branches, can be carried on at the same time. The franchisor develops the franchise operation which should be a mirror of the successful pilot. The franchisor should produce an operating manual, which would show how each franchise should be set up and run.

Once the format has been developed, the franchisor will try to find suitable people to buy the franchise (a franchisee) for a particular territory. There will be careful investigation by the franchisor to make sure that the franchise is sold to a suitable person who will develop the particular territory successfully. A prospective buyer should investigate the franchise, the pilot operation, the contract, operations manual and so on to ensure that the franchise will be worth buying. Mutual suspicion should rule.

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Franchises

When the franchise is bought, the contract will be signed and the buyer will usually pay an initial fee to the franchisor. The initial fee will probably include a straight fee to the franchisor, as well as the money needed to set up the business, for example, premises, initial stock and so on. For this fee, the franchisor helps the franchisee set up the business: helps with finding premises, fitting them out, stocking the business, training, finance, the opening.

After the opening, the franchisor should continue to provide advice and should carry on advertising and marketing the product name. The franchisee will normally pay a fee each month, perhaps based on a percentage of sales or profits. The product will normally be purchased from the franchisor, which may be another way that the franchisor makes his or her profit instead of the percentage on sales. The franchisor has the right to make visits to the franchisee's business to examine the accounting records. At the end of the contract, which often lasts five years, the franchisee can usually renew, subject to the franchisor being satisfied with the franchisee's performance.

The Pluses and Minuses for a Franchisee

Your main consideration before buying any particular franchise is whether it will work as a business for you and provide you with the sort of living you require. Assuming that you have found such a franchise, there are some advantages and disadvantages of which you should be aware.

The Pluses

1.It is your own business.

2.If the business format has been well worked out and tested in the pilot operation, many of the problems experienced in setting up a business can be side-stepped. This reduces your risk.

3.You receive on-going advice and support. This can be particularly important for someone who has had little business experience.

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The Language of Small Business

4.You hope you are buying a product with a recognized brand name. To create a brand image all by yourself can involve considerable resources. But in the case of a franchise, the franchisor should carry on promoting it, using the management service fee (or royalties) or possibly an advertising levy which all the franchisees will pay. So the brand name of your business will be getting a bigger selling push than could be achieved by each franchisee's individual contribution.

5.In the case of many franchises, you need no knowledge of the industry before you start your business. The training given by the franchisor should be sufficient to overcome any ignorance.

6.Franchisors, because of size, have greater negotiating power with suppliers than you do on your own, although not all of them pass this benefit on to the franchisees.

The Minuses

1.While it is your own business, you are expected to act in the best interests of other franchisees and the franchisor. You could find this irritating and restrictive.

2.As well as the initial fee, part of your profits will have to go each year in a payment to the franchisor. You might find this galling,

3.Often the continuing fee to the franchisor is based on your sales rather than profits. This could lead to problems if you are struggling to make profits, perhaps because the costs are too high. This will not be reflected in the level of the fee.

4.The franchisor has the right to demand that you send in sales statistics and other documents promptly, plus the right to come to your business premises and inspect your records. Again this might strike you as a loss of independence.

5.You have to adhere to the methods laid down in the franchisor's operating manual. This could be restrictive and allow little room for you to exercise your own initiative and enterprise.

6.You may have to purchase all your stocks from the franchisor. This allows little room for you to seek competitive alter-

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Franchises

natives. Again, you could find this stifling, if what you want to do is to run your own business.

7.Should the franchisor, despite all your preliminary research and investigations, fail to maintain the brand name by promotion or fail to meet commitments about training and the search for better products, frankly there is little you can do about it. If this is all buttoned down in the contract, however, you may be able to get somewhere.

8.If you want to sell the franchise before the end of your contract, the franchisor has to agree.

9.The franchise runs for a certain number of years. Normally, if your performance is satisfactory, you will be able to renew for another period; but you may have to commit to spending more money on refurbishment and more modern equipment. What happens about a second, third or fourth renewal is not always clear. You should assess the return on the money you invest over the first period of the franchise only. If, for some reason, you are not able to renew, you may have little to sell, because you cannot sell the name or the goodwill.

AStep-by-Step Guide to Choosing a Franchise

1.Keep a healthy dose of scepticism about franchises, franchisors and franchise specialists.

2.Make your own choice of advisers, do not use those suggested by the franchisor. The most unbiased advisers are likely to be a clearing bank – all of which have specialized franchise units giving independent advice – and the solicitor and accountant you employ to advise you.

3.Get your accountant to examine the forecasts given to you by the franchisor and to advise you on how realistic they are.

4.Ask your solicitor to go through any contract carefully to bring out clearly the restrictions and also the ways in which the franchisor will be making money.

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The Language of Small Business

5.Find out how many franchises have already been sold and how long they have been going.

6.Find out, visit and talk to existing franchisees. Do not allow yourself to be restricted only to the franchisor's choice of references. Ask whether a support group of franchisees has been formed,

7.Be particularly careful if the franchise you are interested in is one of the first to be sold. You will need to study the pilot operation with a fine-tooth comb. Does it mirror your likely business? Is the manager of the pilot an average sort of person with the same sort of knowledge and skill as you? Are the premises and their location much the same? Is the stock identical?

8.Watch out if the initial fee is relatively large and the continuing fee relatively small. It is essential that it is in the franchisor's interests for the business to continue to be promoted and properly managed. The success of your business depends on how effective the franchisor is in marketing and purchasing.

9.Look carefully at the arrangements for purchasing equipment and stock. You do not want to be forced to buy new equipment if it is unnecessary, nor do you want an arrangement in which the franchisor can increase the mark-up on products sold to you. You will probably be able to buy supplies from alternative sources in certain circumstances.

10.Investigate the franchisor. The continued existence of the franchisor's business is important to you, because it carries out the marketing, purchasing and other centrally organized functions. Get references and credit ratings. Ask the franchisor to give you a copy of the latest accounts and ask your accountant to study them.

11.Be careful about buying a franchise from a franchisor who is not a member of the Franchise Association. Membership of the association does not guarantee the success of your business or the franchisor's business. And a number of quite reputable franchisors do not belong to the associa-

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Franchises

tion. However, members agree to abide by a code of ethics. Ask a franchisor why it is not a member, if that is the case.

12.Check that you will have the exclusive right to sell within the territory to be allocated, or, at least, that your right to sell is protected. Exclusive rights are being phased out as a result of anticipated competition legislation.

13.Examine what will happen if you die, want to sell your franchise, disagree with your franchisor or want to renew at the end of the term of the franchise.

14.What sort of product is it? It must have a useful life of at least the length of the franchise which you are purchasing. There is very little point in buying a five-year franchise for a product with a life of only three years.

15.Carry out market research in exactly the same way as if you were setting up the business on your own. Unit 'Who will buy?' should help you to do this. Do not rely on market statistics or views passed on by the franchisor.

16.Check that the product has been patented or the name registered as a trademark, otherwise the franchise you buy could be worthless.

17.How will the advertising levels be maintained? Does the franchisor make a firm commitment in the contract to spend certain amounts on promoting the brand name?

18.What is the quality of the field force run by the franchisor? How often will they visit? Are they competent to give sound business advice? What will happen if your business runs into difficulties?

19.The relationship between franchisee and franchisor may, in a few cases, prove difficult to maintain at a harmonious level. What are the lines of communication? Do you think that you will be able to build a good relationship with this particular franchisor?

20.If it is a good franchise, you will face competition from other would-be franchisees. So you should expect a grilling. And if you are not subjected to close investigation, this may indicate that the franchisor is short of buyers.

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The Language of Small Business

21.Many points on which you need information before you tie up an agreement with a franchisor are listed throughout the rest of this chapter. Make sure you cover them in your discussions and check the franchisor's response.

Cost

The cost to you could be made up of one or more of the following charges. There will be the initial cost of a franchise, which includes the initial fee, and most likely there will, be a continuing fee (also called royalty or service fee). There may also be an advertising levy, a mark-up paid on goods or equipment supplied by the franchisor and a mark-up if you lease premises from the franchisor. You need to look out for any hidden costs of financing, if the franchisor obtains a commission on introducing you to a business providing finance or to a leasing company, if you lease equipment. It is only a cost to you, of course, if you could have arranged cheaper finance elsewhere:

•initial cost: the initial cost of the franchise is about £25,000. But this does not include fast food franchises (for example, beefburgers). With these, the average cost is much higher, perhaps £500,000 or more. But the range of prices for all franchises is wide; it could be as little as £5,000, for example. Usually, the initial fee which goes to the franchisor is between 5 and 10 per cent of the total investment.

The initial franchise fee is what you are paying to be given the right to use the brand name within a certain territory and to be trained and provided with advice

•service fee: the service fee payable can also vary quite a lot, from nil up to 20 per cent of sales, but is probably on average around 7-8 per cent. The service fee could be paid weekly or monthly. The fact that the service fee is nil does not necessarily mean that all you are paying will be the initial start-up cost. Franchisors can also be paid by using mark-ups on products and equipment.

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