Choosing a franchise or business opportunity is as exciting-and confusing-as choosing a new car. There are hundreds to select from, each one shinier and more appealing than the next. But how do you look beyond the razzle-dazzle of the showroom to find out whether you're making a smart investment . . . or getting stuck with a lemon?
Whether you're shopping for a car or an opportunity, the secret to making a smart purchase is the same: Do your homework.
To begin, it's essential to understand the difference between a business opportunity and a franchise. The term "business opportunity" encompasses many types of businesses-including franchises. In general, a business opportunity is any opportunity that enables you to make money. Specifically, it refers to the sale of a product or service in which the seller promises buyers they will make a profit, that there is a market for the product or service, or that the seller will buy any unsold merchandise back from buyers.
While every franchise is a business opportunity, not every business opportunity is a franchise. To be a franchise, a business opportunity must meet three criteria set by state and federal law: The franchisee must pay a fee to the franchisor for the right to offer certain products or services; use the franchisor's name, trademark and service mark; and operate the business according to procedures set by the franchisor. A business that doesn't meet these three requirements is considered a nonfranchise business opportunity.
Franchises generally offer a lot of assistance, including hands-on training and ongoing help after start-up. But they also insist you follow rules and operating methods, and they typically require ongoing royalties and other fees. Most business opportunities offer more freedom; they let you run the business any way you want, and there are no ongoing royalties. That freedom means less support, though; in many cases, after the seller gives you some basic guidelines and enough materials to get started, you're on your own.
When conducting research into franchise companies, be sure to review descriptions of the training provided. Business opportunities don't usually provide hands-on training programs, but they may offer audiotapes or videotapes that explain how the business is run. Find out if the seller offers any type of phone or technical support in case you have problems.