Business owners and managers face a myriad of choices every day. We make hiring decisions, market and product choices, advertising decisions, and scores of other choices. Most managers are adept at evaluating the cost of the alternatives, but few consider what economists refer to as the “opportunity cost” of these choices.
Opportunity Cost is an economic term that describes the costs (in terms of currency or benefit) that is foregone by selecting one of an exclusive pair of choices OR the costs incurred by hesitating in making a choice in the first place.
The first type of opportunity cost occurs where there are two alternatives to choose from, but only one option can be chosen. The cost of an alternative that must be forgone in order to pursue a certain action is the opportunity cost. Put another way, this is the value of the benefits you could have received by taking an alternative action.
OPPORTUNITY COST TYPE 1: Some people call this the “alternatives cost.”
To illustrate, a wise investor will consider the difference in return between a chosen investment and one that is necessarily passed up. If you invest in a stock that returns 2% over the year as opposed to placing your money in the alternative stock that gives a 6% return, you gave up the opportunity of the second investment – or had an opportunity cost in addition to the actual investment. In this situation, your opportunity costs are 4% (6% - 2%).
The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.
The second type of opportunity cost occurs when a decision is delayed for some reason. The reason for delay may be a good one – thorough evaluation of alternatives for example. Or the decision may be delayed due to over-analysis, fear, hesitation, or simple laziness. Here the opportunity cost is the sum of values NOT realized had the decision been made timely.
OPPORTUNITY COST TYPE 2: Also known as the “hesitation costs.”
For example when a manager hesitates in hiring the needed candidate, thinking that another better- suited one will appear, the opportunity costs are the loss of productivity that occurs during and after the delay, and this cost can never be recovered. Presumably if there is a real need to hire someone, then there are values associated with that new employee, and each day of hesitation brings a loss of value – an opportunity cost. There may also be costs to morale/productivity within existing workforce due to delay of hiring needed workers, and thus this type of opportunity cost can escalate dramatically.
Farmers know that if they hesitate long enough in the decision as to which crops to plant (corn, wheat, soybeans tec.), it can mean the loss of the entire harvest since full growing season can not be realized. This equals a 100% opportunity cost, and consequently farmers never hesitate with these decisions. Unfortunately hiring managers sometimes don’t evaluate this type of opportunity cost as effectively.
A good friend was recruited for a senior management position in a large multi-national corporation. The interview process was rigorous, but my friend emerged as the top candidate. Unfortunately the hiring decision became mired down with hesitation and distractions on the part of the hiring managers. The process dragged on for nearly 3.5 months in total, and by the time the employment offer was delivered, the process itself demonstrated the poor management of the company and the offer was rejected. The company not only suffered the opportunity costs of delayed productivity, and loss of morale, but in this case had to begin the recruitment and selection process anew as well as suffer with reduced management credibility.
Opportunity Costs, both Type 1 and Type 2 are a reality of business life, but the best managers both evaluate and minimize these critical costs in operating their business.
This month our local community magazine published their annual "Year in Review for 2009" in which they chronicled, among other things, the local businesses that opened or closed their operations. Reading through the list was truly depressing! An astounding number of friends and business associates suffered terribly with the economic recession, and a staggering number of businesses closed operations in 2009. Although Federal Reserve Chairman Ben Bernanke has declared the technical end to the recession, I'm sure those business owners who lost their dream businesses would disagree.
"Year over Year" (YOY) is a term that business analysists use when comparing business performance from one fiscal or calendar year against the previous one. It is an especially usefull review that should be studied carefully, and made even more important by the recessionary cycle we are experiencing.
How did your business fare in 2009 (arguably the worst recessionary period in 50 years) as compared to 2008?
Now is a natural time of year, even for non-calendar fiscal year organizations to perform this analysis, and see just how they fared during 2009 vs. 2008. Careful analysis of YOY indicators will not only show the relative business strenghts and weaknesses, but will provide the tools to make adjustments for 2010 that could spell the difference between business disaster, or success.
In nautical terms, without the occasional sextant sighting, the mid-course corrections will never be made and shipwreck is the natural outcome!
In it's basic form, YOY performance analysis is nothing more than comparing the key performance indicators for one year against the previous year. These indicators vary by business, but generally include: Gross Revenue, EBITDA (Earnings Before Interest Taxes Depreciation and Amortization), Profit Margin, Expense Totals, and a host of other sector-specific indicators. These other indicators may include such things as Rate of Return (for product-producing and sales organizations,) Student Population/FTE (full time equivalent students) for education organizations, or others.
But effective YOY analysis is more than simply generating financial reports and noting the percentage of change of key indicators. That's where it begins, but the BEST managers spend true analysis time along with their team, performing "drill down" analysis to discover the true REASON behind the change - both favorable and unfavorable. This must not be a quick or intuitive process, but requires thoughtful and empirical analysis, with open discussion as to causes.
After the financials are prepared, and the analysis as to cause of change is performed, an action plan can effectively be formulated and executed. In other words YOY contains the following steps:
1. Financial Statements prepared
2. Management Team review and analysis
3. Thorough evaluation ("Drill Down") of causes of favorable/unfavorable elements
4. Formulation of Action Plan based upon this analysis
5. Execution of Action Plan
This is the exact process we follow at Access Education, and I'm thrilled at the performance of 2009 as compared with 2008, regardless of recessionary trends. Like we've said all along
there are some truly recession--proof businesses, and I'm happy that we can show that fact empirically. We strongly encourage each business owner/operator to devote the needed time to do a thorough YOY analysis, and enjoy a fantastic 2010 business year.
“It’s a buyer’s market for businesses.” Inc. Magazine, June 2009
We’ve been talking about counter-cyclical thinking and counter-cyclical businesses for some time. These are individuals and business types that react in an opposite direction to “herd mentality” individuals, and respond to downturns in economic trends with positive business gains. It’s extremely rare to find these types of people, and rarer still to identify businesses that thrive in poor economic climates like we have today – tight credit, increasing unemployment, decreasing discretionary income, and concerns about the economic future. Yet if we carefully look, there are treasures to be found in business opportunity!
Inc. Magazine notes that for those seeking to acquire a business, median sale prices are FALLING significantly, nearly 27% in 2008 as compared to 2007. In fact the median sales price in 2008 fell to $400,000 from $551,000 in 2007. For sellers of businesses, that’s truly bad news, and the fruit of growth with expected equity is eroded. For entrepreneurs and buyers, it is fantastic news PROVIDED they have strong capitalization and ready credit availability. Unfortunately, this is exactly where the difficulty even in a “buyer’s market” comes in - credit availability and capitalization.
The answer is to find a business that takes advantage of counter-cyclical tendencies with respect to general economic trends, has a relatively low capitalization cost, and that has adequate financing opportunities that make it viable. Right now business brokers are reporting cash deals are yielding a 10-15% discount. But rarely is it possible (or even advisable in most cases) to buy a business strictly for cash, and in these days of tightening credit, seller financing has become critical. Business sellers who offer attractive financing are realizing faster sales, and smart buyers are taking advantage of the “buyer’s market” of choices and lower prices.
Even franchising, that super-star of business growth that has routinely boasted growth rates of 5-7% year over year, has seen a slow-down in expansion to a mere 2.1% in 2008 as compared to 2007. Not surprisingly the wise business entrepreneur has realized that franchises have significant advantages that take advantage of the “buyer’s market” of business elements, but have the proven system of operation and strong training programs that give a greater success potential when compared with traditional acquisitions and start-ups.
At Access Education we are proud to offer franchising opportunities that take advantage of this favorable business market, have proven operations successes, are counter-cyclical to negative economic trends, and have attractive financing options. We invite you to visit our website at www.AccessEducationInc.com for more information.
“I’m tired of constantly worrying about my job security and I’m really tired of working for other people. I’d really like to own my own business, but I don’t know what business to start, or where to begin.”
These are words many of us are saying these days. Downturns in the economy and record unemployment statistics only fuel the desire so many of us have to own our own business and make that our vocation – abandoning the “corporate rat-race” once and for all. But what business should I try to start? How can I be sure it is successful? Don’t private enterprises fail frequently? Should I begin my own business once I determine what it is, or should I join in a franchise operation?
These are valid and serious questions each of us has to answer. Our goal is to own a business that is lucrative, profitable, and enjoyable. Most importantly, it’s OURS and we don’t have to worry about corporate downsizing and lay-offs. Look at the following statistics.
- Less than 20% of start up companies remain in business after 5 years.
- Approximately 92% of franchise operations are still in business after 5 years. 86% of these still have the original owner.
- Franchising represents about 42% of all retails sales in the United States. Current estimates suggest this number will increase over the next 5-10 years to more than 50%.
- A new franchised business opens every 8 minutes in the United States.
- In 2000 (the latest statistical year reported) the median annual, gross income of franchisees was in the $75,000 to $124,000 range. Over 30% of franchisees reported earnings OVER $150,000 per year.
All new endeavors involve a learning process. This learning process requires going through a series of trial and error encounters. Knowledge is gained by trying and failing again and again, and eventually trying and succeeding. This process is often called the “learning curve.” In franchised businesses, the franchisor has already gone through the learning curve, has learned the secrets of success for the specific business, and is able to transfer this knowledge to the franchisee. This is a significant advantage to an entrepreneur and is the first reason why you may consider a franchise.
In our future blog entries we will discuss the advantages of franchising, and how that significantly reduces the chances of business failures while retaining business ownership advantages.
“We Never Had It So Good!”
John Howard, former Prime Minister of Australia
When Prime Minister Howard uttered these words the Australian economy had been in a difficult period of decline, and he was severely criticized far and wide by what I call the “Herd Mentality” people. The criticism was so sharp that Howard ultimately suffered political defeat - in part because people didn’t see the up-side brimming with opportunity as their Prime Minister did.
Herd Mentality people are those that think, move, and act with the majority, preferring the assumed safety of group-think. These are the market investors who look for get-rich-quick tricks, and enter the market very late in the cycle only to lose equity during the downturn. They too often buy stocks when they are at the top of the cycle, and sell when they are declining. These are the people that believe the media reports of major gloom and doom, and are frozen by fear, and thus miss out on the real prime opportunities.
“Herd Mentality” vs. Counter-Cyclical Thinking!
Warren Buffett, arguably the greatest CEO/investor ever, said “be fearful when others are greedy, and be greedy when others are fearful.” Buffet’s counter-cyclical actions, his refusal to follow “herd mentality” and his refusal to give into fear are the real basis for his success.
Counter-cyclical means moving against the economic (or business or market) cycle. For example, counter-cyclical business will make higher profits when the economy slows, and a counter-cyclical investment will rise when markets fall.
It is not difficult to think of examples of counter-cyclical businesses (accountants and lawyers specializing in insolvency and bankruptcy are an obvious example) but they are small and specialized. Our last blog outlined counter-cyclical business sectors that wise investors looking at during this cycle of economic downturn. Healthcare and Education are two huge counter-cyclical businesses that are enjoying great growth and prosperity amidst this difficult time.
We are pleased that Access Education, along with most of the education sector, is enjoying expansion and growth, and we encourage all entrepreneurs to reject the “herd mentality” and join us in realizing “we never had it so good!”
If you build it….they might not come!
Some time ago an acquaintance of mine received troubling news of the reduction in force by his employer. His management job was subsequently eliminated in the wake of broad cost-cutting measures. Fortunately this man was able to rebound quickly and worked diligently to scrape up financing and open a small business in his hometown – abandoning corporate America to live the American Dream of business ownership. But just over a year later, his business is faltering, and instead of “living the dream,” it was more like enduring a nightmare. What went wrong? How could this accomplished manager leap from the frying pan into the fire? Like many entrepreneurs, this man believed that, like the cinematic Field of Dreams, all that is necessary is to open for business (“build it”) and customers will immediately flock there and make it a success. Few things can be less true, especially in today’s ultra-competitive marketplace.
Today, not only is the mere presence of a new enterprise or business NOT a guarantee of success, but in this climate of economic downturn and fiscal contraction even well-established businesses are struggling for their very survival. Standby establishments in nearly every community across America are slashing prices, staff, and in many cases closing their doors forever. If you “build it” they might not come after all. Existence does not guarantee success. Even firms with fantastic products and services at competitive prices does ensure or in any way guarantee success. And firms with poor customer service don’t stand a chance!
Businesses today must do far more than open their doors, offer good products and have great customer service. They must market effectively, establish and maintain a web-presence (even those that have products and services that don’t easily lend themselves to web-merchandising), and most of all successful business today must have a proven “SYSTEM” of operation that has been tested over time to give positive results, even in difficult economic climates.
Wise entrepreneurs are not withdrawing during this economic cycle. Rather they are searching for these proven business models with well-developed systems of operations, and products and services that are either immune to economic downturns, or better yet are “counter-cyclical” to negative economic trends. Clever business people see this downward trending economy as the golden opportunity to buy right, build wisely and enjoy a great reward, but only with products and services that have demonstrated success in troubling economic times, and only with proven systems of operation. There simply isn’t a learning curve opportunity that allows business development in today’s marketplace.
At Access Education we are proud to have services that have proven systems of success and have counter-cyclical tendencies. Our last blog discussed these business types in detail. We’re enjoying growth and expansion today, because we don’t blindly assume that building or opening assures success.
“Counter-Cyclical” businesses are even better than "Recession-Proof" ones.
In our last post we noted that few people really understand what constitutes a recession, and what kinds of products, services and business entities are truly “recession-proof.” Clearly those business leaders with products or services that are largely unaffected by downward economic trends are in the enviable position to ride out the storm and in many cases even prosper within it. These are the “recession-proof” businesses. But as we said previously, there are a very few products and businesses that are truly “recession proof” in spite of this term being en vogue today.
There are, however, some businesses that are even BETTER than “recession-proof.” We call these the “Counter-cyclical” business products and services. “Counter-cyclical” products and services are those rare items that actually demonstrate an increase in demand and price even when general economic trends decline. Wise entrepreneurs are constantly looking for products and services as well as business models and types that are truly counter-cyclical. These rare business types allow employees and owners not only the lifeline through difficult times, but they also allow them to prosper in the midst of tough economic times. Finding or owning a truly “counter-cyclical” business can be the find of a lifetime!
Here is a commonly agreed upon list of business types classified by “cyclical” and “counter-cyclical”:
“Cyclical” business sectors - highly affected or closely follow the up and down economic trends.
• Business Services
• Automotive Sales and Service
• Personal Services
• Lodging
• Food Service/Restaurants
Those individuals who work in, or have ownership and equity stakes in the “cyclical” business sectors, acutely feel the impact of economic trends such as we are currently experiencing. Now is definitely not the time to invest in, or acquire equity in these businesses within the cyclical business sector group. The current landslide of employment loss and Gross Domestic Product (GDP) decline can be traced almost entirely to these business sectors.
“Counter-cyclical” business sectors - not only unaffected by economic trends, but respond in the opposite direction to downward economic trends.
• Legal Services
• Amusement
• Recreation
• Private Education and Vocational/Technical Education
Individuals who work in, or have an ownership and equity stake in these “counter-cyclical” business sectors are in the enviable position of increasing and prospering even in these difficult economic times. Wise entrepreneurs confine their acquisition and investment interests to these “counter-cyclical” business sectors.
Access Education and Access Education Franchising Co. are enjoying the benefits of expansion and increase, even within this difficult economic climate. Rarely does a day go by when associates and others comment that it is so unusual for a business to be expanding as we are. That is the beauty of a truly “counter-cyclical” business -- as the economy declines, our business not only is maintained, but is increasing! As a provider of private vocational/technical education, we enjoy more than being just “recession-proof” but are a “counter-cyclical” business.
The term “Recession-proof” seems to be cropping up more and more these days. It’s been used to describe everything from Tootsie Roll candies to Beyonce’. Few people, however, can really define a recession, and even some economists and legislators are unclear on the term.
Unless we’re clear on what constitutes a “recession” we can’t really understand “recession-proof” either.
A recession is generally understood to describe periods when the economy, defined as Gross Domestic Product (GDP), has flat or negative growth for two or more consecutive quarters. We can then say the economy is in a recessionary trend. If the trend continues long enough, for three or more quarters, then we generally term that as a recession. Sometimes people interchange “recession” with “depression”, which is when the GDP has a greater than 10% decline for more than 3 consecutive quarters.
Humorists have frequently noted that a recession is when your neighbor gets laid off, but a “depression” is when YOU get laid off!
To be “recession-proof” thus means a product, service, or business entity is virtually immune to the negative influences of macro-economic trends. In other words, Tootsie Rolls and Beyonce’ must be immune to negative influences in America’s general economic growth. Few products, services, or business entities can boast of such advantages. Healthcare is an example of a service/product that is “recession-proof” in that rarely can patients forgo the expense when it’s needed. Other business types come very close to recession-proof and are largely unaffected by the general economy. Other products, services and business entities are “counter-cyclical” to the economy and not only behave as if they are “recession-proof,” but may actually increase during downward cycles of the economy. These products, services, or business entities behave in a manner that is nearly the opposite of the general economic trend. In the case of Tootsie Rolls, sugar is a comfort element, and thus when people are generally in some discomfort they turn to comfortable aids – hence Tootsie Rolls is a counter-cyclical product. Movie theaters are booming in our generally recognized recessionary trend now, and also qualify as a counter-cyclical product/service.
So too is the service product of education, including that provided by Access Education. Unlike healthcare, people don’t HAVE to buy education, but during difficult economic times buying education better positions the recipient during the downward economic cycle. Colleges, private vocational, and almost every education sector business is booming now.
The general phrase in use by savvy educators it that “when the economy gets bad, our business gets better!”
Teen Driving Facts
• Motor vehicle crashes are the leading cause of death for teenagers.
• 16 year-old drivers have higher crash rates than drivers of any other age
• 16 year-old drivers are 3 times more likely to die in a motor vehicle crash than the average age of all drivers.
• Nearly 5000 drivers age 15-20 died in car crashes in 2006
• 63% of teenage passenger deaths in 2006 occurred in collisions in which another teen was driving.
• States with graduated drivers license programs have 11% fewer fatal crashes
Data from Insurance Institute for Highway Safety, the National Center for Highway Safety, and the National Highway Traffic Safety Administration
Moving forward toward owning an Access Education Franchise is a matter of completing the following 8 steps.
Step 1: Contact Us
There is no time like the present to investigate an Access Education franchise. Economic trends and personal timing elements are rarely in perfect alignment, and the most successful entrepreneurs are often those who aggressively seek out good opportunities. At Access Education, your interest and all information we obtain is kept strictly confidential and is reviewed only by us. We seek to match only the most highly qualified potential franchisees with our locations, and we are very selective. In addition, we work to provide options that fit your personal and financial goals.
Step 2: Phone Appointment
Filling out our contact information, or simply calling to arrange a time for a teleconference will lead you to Step 2. We will set up a telephone appointment to discuss your goals, background and experience, and help you determine if you are a potential Access Education franchisee. This call will take less than an hour. You will have plenty of opportunity during the call to get general overviews and have many of your immediate questions answered.
Step 3: Research
After the initial call, we may ask you as a possible Access Education franchisee to do some research. We may ask you to investigate your market opportunities, regulatory climate and demographic information. Access Education has a great deal of this information readily available, but we want potential franchisees to investigate it as well rather than simply take our word for it. This exercise will validate our information, and at the same time give you up to date insight into your potential market. We will give clear guidance on how to accomplish this.
Step 4: Franchise Disclosure Document
The next step in the process is to deliver the Franchise Disclosure Document (FDD) to you for review. You will need to print, sign and return several pages of it to us upon receipt. This document contains all the important elements of the franchise offering, and should be considered the final authority on all franchise information. Incorporated within the FDD is the Franchise Agreement Document, which serves as a contract, as well as several exhibits and attachments.
Step 5: Review of the Franchise Disclosure Document (FDD)
We will discuss the items that are contained in the FDD and answer any questions you may have. You should then review the FDD in complete detail, writing down any questions or concerns for discussion. You may want to consult with a franchise attorney and an accountant before making a decision. If so, it is important that they have a strong background in franchising. It is important to remember that we are presenting opportunities, but you must make the decision that is best for you and your family.
Step 6: Discovery Day
Access Education will then host a Discovery Day where you will be invited to our offices. You will have the opportunity to ask important questions to help in your decision, in a face-to face setting. You will also meet key support staff in the organization that will provide your initial training and continuing support.
Step 7: Decision Time
You have taken all of the steps necessary to make the right decision. Now it’s time to make your decision, and complete the Franchise Agreement, Franchise Disclosure Document and other paperwork. You have now put yourself in the position to be your own boss, control your own destiny, and succeed in your new business.
Step 8: Congratulate Yourself!
You are now on your way to business ownership with the Access Education family! We will arrange for your training program, and all the other elements that will allow you to completely launch your Access Education franchise.
Mo Thomasos
Owner & Lead Strategist, Slant Marketing
Slant delivers Marketing Strategy for clients looking to develop exceptional brands. As an embedded member of your team, Slant's Playmakers plan and execute programs designed to disrupt your competition and convert your clients to zealots.
| Strategic Thinking: | Marketing: |
| Marketing Strategy | Branding - Logos & Tag Lines |
| Business Development | Website Design |
| Brand Development | New Media Development & Execution |
| Utilization of New Media | Video Production |
| Sales Strategy | Email Campaigns |
Richard Johnson, President and Founder
The Johnson Franchise Law Firm, LLC
Johnson Franchise Law provides expertise in the areas of franchising, distribution, and intellectual property. Our practice is heavily oriented toward assisting clients in expanding their market share and shareholder value. We represent numerous companies in the franchise, service, and retail industries. We negotiate and draft agreements for a wide range of transactions, including franchise, master franchise, area developer, area director, license, and distributor transactions, and for transfers of intellectual property rights. We also prepare disclosure documents mandated by federal agencies, including the Federal Trade Commission, and state regulatory agencies.
We are active in assisting Pacific Rim, Australasian, and Middle Eastern companies that want to enter into alliances with U.S. companies, share resources with U.S. businesses, or open operations in the U.S.
Towne Lake Driving School has been established to serve the Towne Lake, Woodstock, Cherokee and Cobb Counties with the finest driver training available. School owner, Dean Brownhill has spent nearly 3 decades providing education for students at the primary, secondary and higher education levels. He has served as the President of two colleges prior to founding Towne Lake Driving School.
Students receive personalized attention and training from education professionals with extensive experience in successfully teaching students. Our greatest strength is the dedication of our educators to providing the finest driver training available anywhere.
Driver training is NOT the place to cut corners or shop for bargains, and at Towne Lake Driving School you'll find that our quality doesn't come at a premium price. We are proud to offer only the highest levels of driver training at TLDS. We welcome the opportunity to show you how dedication, experience and expertise can help you.
AE business model is based on more than 3 decades of proven education product success and administration. With this foundation of experience, AE has developed and extensive “system” of operation that is readily reproducible in multiple locations, and has allowed select business entrepreneurs the opportunity to participate in the AE system through the franchise ownership program.
This program enjoys a very affordable cost, but more importantly the benefits of the AE system allow each franchise owner the ability to own and operate their own training center with the highest level of proficiency and expertise. Each AE franchise owner, once selected, will receive extensive personal training and equipping in: the AE philosophies, methods of operation, systems of marketing, management of the classroom and other training process environments, regulatory compliance, and facilities and equipment.
Access Education provides a complete and thorough training system to fully equip each franchise owner to successfully establish and operate their training center. Ongoing availability of AE personnel to assist with any operational event including marketing, product selection and delivery, or educational process is readily available to all franchisees.
