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How To Offer a Business Opportunity

If you're looking for a growth option that helps you to spread the idea of your business without the regulation of franchising or the work of multiple locations, offering a business opportunity might be for you.
December 7, 2005

You've grown a successful business and now you want to expand. There are a number of potential paths you can choose to do that, and each has different advantages and disadvantages for you. Your choices can include:

For this article, we'll focus on the option of offering a business opportunity. And in this context, we're not talking about a multilevel marketing business but rather a more traditional approach to the business opportunity option.

First off, it's important to understand the legal differences between a franchise and a business opportunity--there are laws and regulations that govern the activities of someone using either strategy to grow a business. It's important to know--at least in general terms--what these laws are so you don't inadvertently cross a line and become subject to costs and regulations you don't want to have to pay or adhere to. As a general rule, a franchise structure is more highly regulated than a business opportunity, but most states have business opportunity statutes as well.

A franchise requires that a new franchisee pay an initial cost or fee to get involved; it has some form of obligated ongoing payment required (usually in exchange for a commitment to provide ongoing services), and has a common brand or brands used in the operation of the business. If you eliminate one or more of these characteristics, you're generally considered to be operating a traditional business opportunity rather than a franchise.

The Documentation

The most typical method of setting up a business opportunity involves the owner of the successful business taking the time to document all the key operational characteristics and procedures involved in both starting up and successfully running the business. This is usually done by creating one or more manuals that explain everything a new person would need to know about the business based on the owner's experience. The manuals need to explain the following areas in detail:

All this documentation, contained in a set of manuals, becomes the "business plan" for successfully operating this concept. The owner then offers this business plan for sale to interested parties who would like to start this type of a business.

Training and Fees

In addition to the manuals, the seller of a business opportunity usually provides an initial training program, which is normally conducted at the owner's existing business location. The buyer comes to the location for a week or two to get hands-on training experience in an actual operating unit.

You typically charge a one-time fee for the business opportunity, and then after the training's finished, the person who bought the business opportunity will be on their own. The contract for such a sale is usually pretty simple, and its main features are the price a person has to pay for the opportunity and a confidentiality agreement requiring the investor not to share the business plan information with anyone else.

The initial fee charged for a traditional business opportunity fluctuates widely, but for a reasonably thorough preparation for a reasonably complex business, it's not uncommon for the one-time fee to range from about $10,000 to $25,000. Frankly, if you can't generate a fee in this range, it's probably not worth the effort to go through the process of preparing and then attempting to sell your business plan.

A business opportunity typically doesn't require (and may even forbid) the new investor from using the same brand name as the existing business. A common brand is one of the characteristics that makes a business a franchise, and you want to make sure you're not treading in franchise water if you mean to be a business opportunity. A business opportunity may also grant some form of exclusive territory as part of the sale, though many do not.

There's typically no assumption that there will be any ongoing fees of any kind paid to the owner under the terms of the business opportunity contract. There's also normally no assumption that there'll be any ongoing service or support responsibility after the initial training in this type of relationship. As the creator of a business opportunity, you're simply agreeing to give someone the initial advantage of your experience in exchange for a one-time fee payment.

Though there are usually no requirements to do so, most business opportunity owners do provide some ongoing communication facilitation to the people who bought their business plan. These buyers generally form a network of business owners with the common denominator of having all started from basically the same place. This communication can be as simple as a newsletter or, even more common today, an intranet with forums to share best practices and other helpful information.

The Step-by-Step Process

The path to setting up a business opportunity is fairly clear and involves the following main steps:

What Businesses Should Offer Business Opportunities?

The types of businesses that work well under a business opportunity structure tend to have two common characteristics. First of all, they're concepts that don't require a common brand in order to convey quality or value to potential customers. Second, they're concepts that are easy enough to learn that someone without experience in the concept's operation can be taught whatever they'll need to know to be successful in a relatively short period of time (say, two weeks of training or less).

Most business opportunities that are successful in selling a significant number of business plans also feature a fairly low total investment (including working capital and a grand opening advertising budget) to get started in the business. They're almost always less than $150,000 in total investment, and many are under $50,000.

The types of businesses that don't tend to work well under a business opportunity structure are usually ones with more complicated operations and/or ones that require special licenses to conduct business, especially if the licenses take months or years to acquire. It's also much harder to sell a business opportunity if the total investment to start the business is greater than $200,000 or so.

Deciding to expand your business by preparing and offering a business opportunity can be very rewarding financially. And if you're the kind of person who gets satisfaction from helping others achieve success, you'll probably find that many nonfinancial rewards come to you after you start offering a business opportunity based on your already successful venture.