Differences between a Franchise & a Business Opportunity: What is Right for You?

There are two ways to start a business without having to start from scratch. These are:

• Franchises
• Business opportunities

Both are quite similar in one way or another but there are some major differences as well that you must acknowledge.

If you have decided to go into business and wondering what type of entrepreneurial venture is best for you, conduct in-depth research on various businesses before you take any decision.

Let’s talk about business opportunities first.

Business Opportunities

A business opportunity also known as biz op is a packaged business investment that allows the buyer to start a certain business.

The following are the most popular business opportunities.

• Turnkey Operations

  A turnkey business opportunity is a setup to add everything the owner needs to start the business. It includes the business model, name, location, permits, equipment, and inventory. Why it is named as turnkey is because the buyer needs to turn the key and get the business up and running.

• Distributorships

  A distributorship is a company or an individual agent that sells and markets other company’s products but cannot use the company’s name.

• Dealerships

  Dealerships and distributorships are quite similar to each other but the dealer connects with distributors with potential customers. A dealer purchases and sells products as part of their business.

• Network/Multi-level Marketing

  In multi-level marketing, an agent sells products directly to the public and also recruits others in the program as well.

  Agents in multi-level marketing make money in two ways: through the direct sales of products to customers and by recruiting others and earning commission based on what they buy.

• Trademark/Product Licenses

  A product license is maybe the best business secret. It involves obtaining permission from a company to manufacture and sell products within a defined market area.

• Rack Jobbers

  A rack jobber is a company that provides racks of products for retail locations and splits the sales between the two parties. The company maintains the racks and the agent controls the whole inventory.

• Vending Machine Routes

  Vending machine routes are similar to rack jobbers but the difference is that the agent has to pay for the equipment and the product as well.

• Freelancing/Work From Home Opportunities

  In this business opportunity, a company employs an agent to do work remotely. Taking surveys from home, selling products on eBay, affiliate marketing to name a few.

  In a business opportunity, the owner of the business outright is the buyer and has the right to customize the business aspects as per the requirements.

  When a potential business owner makes a contract with the licenser for a business system it also includes training, equipment, and the service that has been used. After finalizing the purchase, the relationship between both parties is over.

Franchises

No idea what is franchising or a franchise? A franchise is basically the right given to an individual, group, or company to distribute its product or service in a specific location.

Below are the different types of franchises:

• Business Format

  It is one of the most popular forms of franchising. In a business format, a company provides the franchisee with an established business to run independently.

• Product

  The franchisor is allowed to distribute products by using the company’s logo, name, and trademark.

• Manufacturing

  The franchisor permits the franchisee to manufacture their own products and distribute them under the company’s name and trademark.

For buying a franchise, the potential franchisee goes through an extensive and time-consuming process for completing the deal.

Before scheduling an interview, a potential franchisee has to provide all the initial details in an application. The details include background information, work experience, and the financial situation to find out if the franchisee can run the business until it is profitable.

Assuming that the potential franchisee is a suitable candidate, the next step is that the franchisor will make a contract with the franchisee. Before both parties agreed to the clauses, the contract should be gone over the legal counsel.

At least 14 days before the contract is signed, the franchisor is required by the Federal Trade Commission (FTC) to present the franchisee with the Franchise Disclosure Document (FDD).

FDD is the document that outlines the information regarding the business overview, turnover rates, fees, terminations, restrictions, and various other items linked to that particular franchise. It also helps in outlining the overall steps to buy a franchise.

Once the purchase is made, the franchisee is required to follow all the guidelines regarding the operation of the business which is not the case in a business opportunity. These guidelines are set to protect others and maintain brand consistency. The total cost paid to the franchisor does not end with the initial sale, unlike business opportunities. For that, you must be aware of the cost of starting a franchise and how to get the required finance.

For franchises, the most common ongoing fee is the royalty fee. The royalty fee is collected as long as the franchisee is the owner of the franchise. In exchange for royalty fees and other payments, the franchisee will get continued support such as technical assistance and marketing support, etc.

What are the underlying risks for both franchises and business opportunities?

Business opportunities are not closely monitored as compared to franchises so prior precautions are required to be taken to avoid scams.

To overcome such risks, the FTC has taken remedial steps and cracked down the franchises which made false claims. They also have a website to guide those looking for new genuine business opportunities, avoid scams, and ways through which they can contact them if they know any company offering fraudulent business opportunities.

With all this, we can not guarantee that franchisees are not at any risk. Franchises are also faced with several risks such as the increased expenses to run the business that is not specified.

Franchises vs Business Opportunities: Comparison Chart

Below you can explore the key differences between franchises vs business opportunities.

Franchising or Business Opportunity - The Right Choice!

To summarize, a franchise is a business opportunity, but not all business opportunities are franchises.

Both are suitable for those without a unique product/service to fill the gap in the marketplace. The main factor that distinguishes a franchise from a business opportunity is how much support you need.

If you simply want to start a business and need flexibility with time, a business opportunity is probably the best option for you. But choose a franchise if you are looking for more guidance in business operations and avail benefits of franchising.

Regardless of which option you choose, here are some tips to provide you with more franchise buying advice.

• Collect background information by contacting the state attorney general’s office.
• Contact and get help from the current and former owners who have been through the same process with the business you are planning to start.
• Hire experts to ease the overall process.
• Thoroughly read all documents before signing the franchise agreement.

Keep in mind that no business is immune to risks and failures without a proper plan and lots of hard work. So, better conduct extensive research, ask questions, find ways to meet your expectations, and do your best to make your business successful.