Franchise Article

Business Opportunities Versus Franchises

One area of confusion for some new entrepreneurs is the term "business opportunity." A quick Google search will generate an enormous list of business opportunities, all promising big profits and low start-up costs. While such opportunities may sound good initially, understanding how they stack up to franchises can help you make the right decision.

What is a Business Opportunity?

A business opportunity is a chance for you to go into business for yourself. Generally, you will be selling the product or services of your licensor. You will have to purchase your inventory from the licensor in most cases, but you will be able to sell the products wherever you want to whomever you want. There aren't any restrictions in that regard.

Most business opportunities require very small start-up fees. Most cost less than $1,000. That can be a real benefit for entrepreneurs who don't have a lot of money to get started.

One example of a business opportunity is a vending machine. You purchase your vending machine, place it in the locations you desire, purchase your inventory from a licensor, and collect the money from the sales periodically.

Of course, you have to be careful when encountering the phrase "business opportunity" on the Internet because many of these opportunities are just glorified MLM (Multi-Level Marketing) schemes which are rarely profitable for anyone but the people who started the program.

The Differences Between a Business Opportunity and a Franchise

The biggest difference is cost. While a business opportunity might cost you $1,000, a franchise is going to run you $25,000 and up just to get started, plus you'll have to pay royalty fees to the franchisor. However, you get a lot more for your money with a franchise.

With a franchise, you are purchasing a brand name, customer loyalty and goodwill, and a proven method of business operation. You are also, in most cases, investing in training and in ongoing support from the franchisor. Remember they benefit from your success, so they are more likely to assist you along the way.

With a business opportunity, you are buying the chance to operate a business. You may get an established product, but that's about it. You won't get a brand name or any pre-existing customer loyalty. You might not even get a proven method of business operation, since some of these opportunities leave sales and distribution decisions entirely up to you. You also won't receive any additional training or assistance in most cases.

Another difference is that you are entitled by law to know more about a franchisor than about the licensor of a business opportunity. The UFOC outlines everything you need to know about a particular franchise before deciding whether or not it's a good choice for you. With a business opportunity, you generally do have a signed agreement but you don't receive the type of disclosure you would from a franchisor. This is beginning to change as more states are now requiring that licensors have disclosure statements for these business opportunities on file as well.

The bottom line is that if you are serious about opening your own brick and mortar business, then a franchise provides more benefits and more services for your money. You are less likely to get involved in a "fly by night" operation that doesn't deliver on its promises, and you probably stand a much better chance of making a profit. Of course, if you're not ready to commit yourself full-time to running your own business or are more interested in establishing an online business presence, then you might be better off choosing a business opportunity.