A Tale of Two Opportunities

If you're considering buying a franchise or business opportunity, here's what you need to know before making your decision.

Homebased franchises and business opportunities offer investment opportunities built on a truly irresistible principle: Own a business, be your own boss, work out of your home and leave behind that hideous commute.

The basic appeal may be the same, but franchises and business opportunities are more different than they are alike. They share DNA--they both offer an opportunity to begin a new business--but each has distinct pros and cons. Understand those key differences, and your search for that perfect business investment can really pay off.

Comparing Investments

Lay the two investment concepts side by side, and their fundamental differences become evident. The similarities are simple enough: The investments both enable you to begin a business. That's about it for similarities. Every other aspect of the two investments falls in the differences column--the business opportunity is a one-time purchase, usually a part-time effort, and there is no continuing relationship with the seller. By and large, it is a smaller investment and does not feature ongoing royalties. The seller is a product provider, although some inexpensive guidance material is usually offered with the purchase. Trademark rights are usually not licensed to the buyer. The business opportunity seller is generally not available to provide business assistance when things go wrong. You're on your own.

Franchising is the more sophisticated investment-sophisticated in the sense of the greater number of moving parts. It is generally a full-time, absorbing business experience. The investment can be substantial; a freestanding franchised restaurant can easily cost you $500,000 in total investment. That said, the hottest growth sector in franchising today is the homebased business franchise. These programs are lower-level investments, often totaling no more than $30,000 to $40,000.

The franchisor is your operations partner, providing intense training and ongoing handholding. Of course, you buy that support for a price: You'll typically pay a $10,000 to $30,000 initial franchise fee and 3 to 7 percent of your business's weekly or monthly gross sales. You receive the right to identify your franchised business with the franchisor's (preferably well-established) trademark and to use its (preferably proven) operating techniques. When problems occur, the franchisor is there to walk you through them. You have the intrinsic benefits of purchasing power-as a member of a franchise system, you benefit from the strength of large numbers of buyers (think savings in volume discounts) when it comes to purchasing inventory and supplies. With a franchise, you have a valuable senior partner in your business.

With a business opportunity, you buy a package of goods and services, and there is little or no continuing relationship. If there is a continuing relationship, it's usually no more than that of a product supplier to your business.

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This article was originally published in the May 2005 print edition of Entrepreneur's StartUps with the headline: A Tale of Two Opportunities.

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