Franchise Buying Guide

Different Worlds

How to choose between a franchise and a business opportunity
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

To the untrained eye, franchise and business opportunity investments look pretty much the same. Both invite you to purchase a package of goods and services and business concepts. Both offer you the chance to capitalize on a business idea that has already proved to be successful. Both provide some training, handholding and access to a valuable marketplace.

In reality, though, there are huge differences between the two concepts. While these fundamental distinctions sometimes appear subtle, detecting and understanding them can help you protect yourself when you take the plunge into your new business.

If there's one telltale difference between a franchise and a business opportunity, it's the role of a trademark. The licensing of trademark rights is a hallmark of franchising: Every franchisee of a McDonald's, Subway or Holiday Inn is operating under a trademark license. The consistent image portrayed by these and other franchise systems symbolizes their strength in the marketplace, and is the direct result of a trademark license. If a program grants you the right to operate under a trademark owned by the seller, you're most likely looking at a franchise rather than a business opportunity.

Never underestimate the value of that trademark. The well-known marks of franchises like Burger King or Pizza Hut are powerful consumer magnets. This magnetism is created and maintained by years of national advertising-we've grown up with these brand names. The power of a franchise trademark is that it promises consumers constancy. When someone pulls off a road at the sight of a trademark on a sign, he or she knows exactly what to expect. Consequently, weaker marks, such as those of a new franchise system or those new to your area, don't have that same marketplace pull and won't be as valuable to the franchisee.

Franchises also put an emphasis on training and ongoing assistance in the operation of the business. The appeal of franchising-being in business for yourself but not by yourself-is rooted in the know-how and services supplied by the franchisor throughout a long, supportive business relationship. On the other hand, most business opportunity sellers offer self-contained programs with some instruction (often recorded) and little or no ongoing business support.

Another distinction between franchises and business opportunities is the cost. A retail franchise program can involve initial fees of $30,000 or more with a total business investment of $50,000 and up. In contrast, most business opportunity purchase prices are low enough to be put on a credit card, running from a few hundred to a few thousand dollars.

Federal and state laws subject the two types of programs to similar disclosure and registration requirements, but the rate of compliance is significantly higher in the franchise community. This means a franchise investor is more likely to receive a disclosure statement (the Uniform Franchise Offering Circular, or UFOC) than is a business opportunity investor.

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