Franchise Buying Guide

The Choice Is Yours

Business Opportunities
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Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

According to Andrew A. Caffey, a franchise and business-opportunity specialist who practices law in Bethesda, Maryland, the lack of a continued relationship between the seller and the buyer of a business opportunity, and the supplying of a business "blueprint" for the buyer to follow with no rigidly enforced operating structure, are the most basic characteristics that distinguish business opportunities from other types of businesses. He says business opportunities are generally kits describing how to get started in a certain business, sometimes providing a buyer with a product-distribution network. The price for a business opportunity is typically in the $500-to-$5,000 range, he adds, though they can be priced much lower or higher.

"The major reason to opt for a business opportunity over a franchise is independence," Caffey says. "A business-opportunity buyer can operate independently and is not going to be required to operate under the restrictions that a franchisor is likely to impose."

Caffey says that, while business opportunities are not as diligently regulated as franchises, regulations exist at the federal level and in 25 states that apply to business opportunities. However, many of these regulations don't apply unless the purchase price is at least $500.

The value of business opportunities can be found in their two basic components, according to Caffey: the distribution networks, which give business-opportunity buyers access to products or services being sold by business-opportunity sellers, such as specialty items or information services; and the instructional components on how to get started with the business opportunity.

Business opportunities can be found in magazine advertisements or at business-opportunity trade shows, but there are no agencies or associations to make researching business opportunities easier, Caffey says. The lack of a national organization among business-opportunity sellers and their lack of ongoing contact with buyers are the chief reasons Caffey cites for the difficulty of judging their success rates.

"A good business opportunity is packaged and thought out for you in advance, and doesn't require a large investment or continuing royalty payments," Caffey says. "The downside is that it may not be a business that is a good fit for the buyer. Making that decision is where the magic is. Make sure this is something you want to do, and something that will fit with your personal style and budget."

Finn Skeisvoll found a business opportunity that fit him perfectly. A Norwegian immigrant who was working as an electrical engineer, Skeisvoll decided to invest in a business opportunity, distributing products provided by Specialty Merchandising Corp. (SMC), a high-volume gift importer and business-opportunity seller located in the Los Angeles suburb of Chatsworth, as a sideline to his regular job. Eventually, the business opportunity grew into his primary livelihood and provided him with a lifestyle that he says he couldn't have enjoyed on an engineer's salary.

"I always wanted to get into something of my own. It was my dream," says Skeisvoll. "I saw a few ads and investigated a few companies, but I decided that I liked SMC. They had a location close to my job, and they had a showroom where I could check out the products."

The attractive cost of becoming a distributor, which Skeisvoll remembers being around $100 when he started his business 25 years ago, was one of the factors that attracted him to the business opportunity. Skeisvoll acknowledges that his own independent nature was another factor that made the business-opportunity relationship attractive to him. From this relationship, Skeisvoll started Scan-Am Enterprises, a company that provides novelty items to several large mail order clearing houses, including such giants as Carol Wright and Fingerhut. "At first, I didn't have to come up with much start-up money," he says. "I was still working my regular job, and this was something I could easily do on the side."

Skeisvoll had no real business experience, outside of a few business classes he had taken in Norway, so the learning was done on his own. The local library became Skeisvoll's basic research tool; there, he came across directories of mail order companies, and he decided to pursue them as prospective clients.

"You have to be inventive and save money as you go along," Skeisvoll says. "I've been very, very fortunate. I have only good things to say about it. It's absolutely better than my career as an electrical engineer."

The Business Opportunity Pros:


  • Business opportunities have relatively low start-up costs, usually falling in the $500-to-$5,000 range.


  • Generally, there are no continuing royalties or fees to be paid.


  • Your business will be selling a product and using a system of operation that have already been proven.

Cons:


  • The product or service may not have a brand name which your potential customers will recognize.


  • Often, there is no system of support following the purchase.


  • Currently, there is a lack of information on the success rates of business opportunities, making them harder to research.

Resources:


  • Dun & Bradstreet (for reports on individual business opportunities)

1 Diamond Hill Rd.

Murray Hill, NJ 07974

(800) 234-3867


  • Better Business Bureau


  • Federal Trade Commission

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This article was originally published in the May 1997 print edition of Entrepreneur with the headline: The Choice Is Yours.

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