Fast Track Get on the road to success with the right franchise or business opportunity.
Choosing a franchise or business opportunity is as exciting-andconfusing-as choosing a new car. There are hundreds to select from,each one shinier and more appealing than the next. But how do youlook beyond the razzle-dazzle of the showroom to find out whetheryou're making a smart investment . . . orgetting stuck with a lemon?
Whether you're shopping for a car or an opportunity, thesecret to making a smart purchase is the same: Do yourhomework.
To begin, it's essential to understand the differencebetween a business opportunity and a franchise. The term"business opportunity" encompasses many types ofbusinesses-including franchises. In general, a business opportunityis any opportunity that enables you to make money. Specifically, itrefers to the sale of a product or service in which the sellerpromises buyers they will make a profit, that there is a market forthe product or service, or that the seller will buy any unsoldmerchandise back from buyers.
While every franchise is a business opportunity, not everybusiness opportunity is a franchise. To be a franchise, a businessopportunity must meet three criteria set by state and federal law:The franchisee must pay a fee to the franchisor for the right tooffer certain products or services; use the franchisor's name,trademark and service mark; and operate the business according toprocedures set by the franchisor. A business that doesn't meetthese three requirements is considered a nonfranchise businessopportunity.
Franchises generally offer a lot of assistance, includinghands-on training and ongoing help after start-up. But they alsoinsist you follow rules and operating methods, and they typicallyrequire ongoing royalties and other fees. Most businessopportunities offer more freedom; they let you run the business anyway you want, and there are no ongoing royalties. That freedommeans less support, though; in many cases, after the seller givesyou some basic guidelines and enough materials to get started,you're on your own.
When conducting research into franchise companies, be sure toreview descriptions of the training provided. Businessopportunities don't usually provide hands-on training programs,but they may offer audiotapes or videotapes that explain how thebusiness is run. Find out if the seller offers any type of phone ortechnical support in case you have problems.
Read All About It
Starting any business has risks, and those risks aren'tentirely offset by the advantages of the franchise or businessopportunity relationship. How can you be sure the company you buyan opportunity from is on the level?
If you're considering a franchise, you have an advantage:all franchisors must provide a comprehensive disclosure documentthat reveals key information about the investment and the seller.Called a Uniform Franchise Offering Circular (UFOC), this documentmust be delivered to you at either the first meeting to discuss theopportunity or 10 business days before you sign a contract or pay afee-whichever is earlier.
The UFOC is required reading if you're considering afranchise. It consists of a detailed description of the franchiseoffering, the seller's audited financial statements for thepast three fiscal years, and a copy of the franchise agreement andany related contracts. Review these documents with an accountant tosee if the company is on solid financial footing.
The business backgrounds of the people running the franchise,and the litigation and bankruptcy histories of the company and itsmanagement, are also detailed in the UFOC.
Item 20 of the UFOC shows the growth or decline of the franchisesystem over the past three years, and lists active franchisees andthose who have left the system in the past year.
Franchise fees and a detailed estimate of the total investmentare also included, and you'll receive a breakdown of anyfinancing the franchisor offers, as well as information onadvertising and training.
Visit several franchisees in your area. (The UFOC provides alist of them.) Ask them what they like and dislike about thefranchise and whether they'd buy it again knowing what theyknow now.
Biz Op Basics
What if you're considering a business opportunity? Half thestates now regulate the sale of business opportunities. In thesestates, the seller usually must provide potential buyers with acopy of the company's registered disclosure document before thesale is completed. But many business opportunity sellers don'trealize these laws apply to them, and opportunities that cost $500or less are exempt.
To research a business opportunity, talk to others who havebought the opportunity (the seller should have a list); your lawyerand accountant; the Better Business Bureau; and Dun &Bradstreet, which can provide detailed information about acompany's financial status.
Putting forth the effort to research an opportunity before youbuy improves your chances of satisfaction after the purchase.Don't neglect this crucial step in the process.
