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.
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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.
Originally published in the June 2003 issue of Entrepreneur's StartUps
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