Just the FAQs

Got questions about researching and buying a franchise or a business opportunity? We've got answers.

Q: I'm not sure what my next career move should be, but I have always dreamed of owning my own business. Can a franchise or business opportunity help me get there?

A: You're not alone looking for help with entrepreneurial solutions in your career plans. Tens of thousands of people every year take a good look at purchasing a franchised business or the smaller, do-it-yourself packages known as business opportunities. The two concepts are similar only to the extent that they both help the buyer get into business.

A franchised business grants you the right to operate under an established trademark, using a proven system of business, and to have an ongoing relationship with your franchisor. Yes, you pay fees for the use of the trademark and the services--usually an upfront initial franchise fee and then ongoing monthly or weekly royalties measured as a small percentage of your gross sales. Franchisors, at least the good ones, provide you with full training before you open and continuing support as you meet the challenges of the business.

Franchising is the well-established legal structure behind the worldwide explosion of American fast food, with famous brands like McDonald's, Subway and Holiday Inn leading the parade. It's not limited to fast food, of course; franchising as a distribution method has popped up in many different industry categories.

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A business opportunity, on the other hand, is a one-time shot: a package of materials needed to start a business, usually with no trademark or supportive continuing relationship with the seller, but also with no royalty fees to pay. Most business opportunities, if we can generalize about this varied concept, are packaged sales programs, inviting the buyer to sell goods bought presumably at wholesale. They include everything from a string of vending machines (you name the product) to selling advertising on the Internet to retailing a specialty product from a shopping mall kiosk.

Start your search for the right franchise or business opportunity by getting introspective: Decide what you really like to do with your time and energy. Assess your resources so you know what you can afford, and then begin your quest.

Q: What steps can I take to avoid--or at least reduce--the financial risk of buying a franchise or business opportunity?

A: There will always be financial risk in business; some say that's what makes it so exciting. Franchising often presents a business package that has been tested and found successful in the marketplace, a trademark that is well-known, training for the business neophyte and ongoing assistance. Does a franchise reduce the financial risk of going into business simply because it is a franchise? Probably not--at least you should never assume that's the case.

A business opportunity may be less risky, because it tends to involve a smaller initial purchase price than a franchise. Even at the lower purchase levels, however, you must be prepared to lose your entire purchase price when buying a business opportunity.

There is really only one way to reduce financial risk with a franchise or business opportunity investment, and that is research. Your goal by the time you commit to the purchase should be to know as much as possible about the business and the people in that business. You should take a number of steps in this research phase, including carefully reviewing the information given to you by the seller, contacting regulatory agencies in your state, meeting with the existing owners, and consulting with your own professional advisors.

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This article was originally published in the June 2003 print edition of Entrepreneur's StartUps with the headline: Just the FAQs.

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