Franchise Or Business Opportunity?

By: Maria Cardinal - Freelance franchise contributor to RedHotFranchises.com

A Franchise Or Business Opportunity?

In most cases, the distinction between a franchise and a business opportunity is easily identified – brand recognition can point you towards a franchise opportunity, as well as marketplace positioning such as a retail outlet in a shopping mall. If you are using the Internet to shop for a franchise opportunity, you need to look for key criteria to assess venture as a business opportunity and not a franchise. 

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• Buyer of the opportunity, (the licensee), must distribute or sell goods and/or services supplied by the licensor or franchisor.

• The licensor must provide an outlet of distribution for the products/services being sold by licensee.

• The start-up fee should cost no more than $1,000.

• There is a written agreement between licensor and licensee.

• An FTC disclosure statement is issued at least 10 business days before the signing of a contract or exchange of money.

Limitations of a Business Opportunity:

Some business opportunities are packaged to look like franchises, but once you get a better grasp of what is a franchise, you’ll know the limitations of business opportunities:

• No trademark or branded strength

• No exclusive territory

• Limited training, ongoing support, and marketing from licensor

• Dead-end outlet of distribution such as low-traffic site selection

Types of Business Opportunities - Consumers:

Business opportunities usually fall into a narrow category of ventures. If you feel like you’re buying a “business in a box,” you might be looking at a “biz-opp.” Topping the list are “distributorships” where you sell another company’s products or services under your own business name. MLMs are a perfect example.

Types of Business Opportunities – Businesses:  

Existing businesses can even buy into a business opportunity to add value or diversify their product or service offerings. These are sometimes referred to as “Value-Added Profit Centers” that require a minimal investment but allow business owners to offer a high value product or service under the same roof. For example, a convenience store who offers a dry cleaning outlet within the store for their customers.

Franchise:

is a business model created by someone or a team of people, called the franchisor, that grants the right to someone (you, the franchisee) to sell the business model’s proven or well-recognized goods or services under a pre-defined set of terms and conditions, also known as a “system.”

The relationship between a franchisor and franchisee is held together by a contract called the Franchise Agreement which outlines the privileges, terms, conditions, restrictions and other details of the system.

Businesses that Use a Franchise Model

There are three types of business concepts that use the franchise model. Some of these ventures are difficult to launch because of the costs involved, whereas others are more easily attainable.  

• Distributorships: these grant the right to sell their parent company’s products such as car dealerships, i.e. General Motors, Ford, Toyota etc. or vending machine routes.

• Brand Name Licensing: this gives the licensee the right to use the parent company’s brand in conjunction with the operation of their own business. Here, the product or service is franchised (or licensed) and not the business itself. For example, a sports store in a small town is granted the exclusive rights in that town to sell Nike products. Sports franchises fall into this category as well.

• Business Format: The most common franchise format where a Franchisee purchases the right to operate a unique business system (retail, home-based, fast food concept etc.) that has an established history and track record created by the Franchisor. In exchange for a pre-determined royalty structure, the Franchisor provides initial and ongoing training, sales and marketing support, and many other services and assistance to aid in the franchisee's business success.