Are you ready to start a business but don't have a specific business idea of your own? Perhaps you’re a little nervous at the thought of developing your own company from the ground up, but you don't like the restrictions of buying a franchise business. Maybe you can't afford the high franchise fee. If this sounds like you, buying a business opportunity could be the ideal choice.
What are the differences between a business opportunity and a franchise?
All franchises are actually business opportunities, but not all business opportunities are franchises. Confused? The difference between the two types of ventures boils down to this: Once you purchase a business opportunity, the business opportunity seller does not have any control over how you operate your business — unlike a franchisor. They may not even have any ongoing relationship with your business whatsoever. This can be both a good and bad thing: It’s good for you if you chafe at the idea of someone telling you how to run your business, but bad for you if you need guidance or assistance and have no one to turn to.
What do you get when you purchase a business opportunity? Similar to a franchise, but on a much smaller scale, you will get access to a concept, a package of startup materials/inventory, and/or equipment that you can use to start a business. In most cases, you can name your business anything you want, because you don't get the rights to a trademark or logo. Nor will you get any ongoing help, such as access to marketing materials or training.
On the plus side, when you buy a business opportunity you won't have any ongoing royalties to pay. In addition, the startup cost of buying a business opportunity is much lower than for a franchise — sometimes, as little as a few hundred dollars.
There are several different types of business opportunity structures:
- Distributors or dealers: In this type of opportunity, you buy the right to sell the company's products. For example, if you own a beauty salon, you might become a distributor for a cosmetics business opportunity’s skincare products, and sell them in your salon.
- Vending machine operators: The business opportunity seller provides the vending machines; you buy the stock for them, maintain and service them, and collect revenues.
- Licensee: A licensee of a business opportunity can use the company’s technology, methods or equipment, as well as the company's name if desired. For instance, an auto detailing business opportunity might teach you how to use its proprietary machine and methods to buff and wax cars.
- Direct selling: Avon and Tupperware are perhaps the best-known direct selling business opportunities. In most direct sales programs, you not only sell the company's products to customers one-on-one, but also recruit others to be salespeople and receive a percentage of their revenues.
Before purchasing any business opportunity, it's important to do your homework. Unlike franchises, business opportunities are not regulated in most states. As a result, the industry includes some bad apples who defraud would-be entrepreneurs and cheat them of their investment.
Contact your state's consumer protection agency to find out if your state has any requirements for business opportunities. Even if your state doesn't regulate business opportunities, you can still protect yourself by doing due diligence before you invest any money.
- Search online for any complaints or poor reviews of the company.
- Contact the Better Business Bureau for any official complaints.
- Find out whether the company is registered with Dun and Bradstreet; if so, you can get details about its finances to see if anything looks suspicious.
- Ask the business opportunity company if they can give you a list of other business opportunity buyers. Talk to some of them. See how satisfied they were with the business opportunity and ask whether they would buy it again if they had the chance.
Business opportunities can give the novice entrepreneur a head start at creating a business. Choose wisely, and buying a business opportunity could be just the nudge you need to become your own boss.