So you’ve decided to be your own boss rather than work for someone else the rest of your life. Good for you! Many decisions will crop up before you make that first deposit or paste that first dollar bill on the wall next to your cash register. Choosing what sort of business you wish to operate is tops on the list – retail versus wholesale and service-related versus product-oriented – as well as the specific industry you plan to enter or the type of work you hope to do. But selecting between two major categories of self-employment is awfully high on that list – buying a business opportunity as opposed to a franchise opportunity.
What is a Franchise?
Many U.S. companies, especially those in the retail sector, provide goods and services through franchisees. If it’s a national brand, chances are good the owner of that particular establishment has purchased the right to operate it from the parent company. Fast-food restaurants are one major category, but the concept extends to everything from car repair shops and daycare centers to mobile veterinary clinics and home cleaning services. By paying an up-front fee, plus perhaps a percentage of your monthly gross revenue for ongoing licensure, you have the opportunity to become an independent operator with the full backing of a major corporation.
What is a Business Opportunity?
A business opportunity is far less structured than its franchise equivalent. You are given basic information about an industry and how to operate within it, but you’re under no obligation to promote a particular brand or to do business in a particular or controlled manner.
Franchise Opportunity Benefits
By purchasing a franchise, you gain immediate name recognition and credibility. No one questions the fact that Dairy Queen is a great place to buy soft-serve ice cream treats. Because the parent company is invested in making your business a success – they can’t collect that monthly payment or use you as a reference for new franchisees if you’re out of business – they provide both initial and ongoing training, regional or national ad campaigns, and well-tested business methods that are guaranteed to work. If the business requires a storefront, the company will usually help you find a good spot with lots of traffic, and perhaps even offer some sort of financing arrangement. Does the business require specific supplies or inventory? You will probably be offered significant discounts, since buying in bulk across the enterprise usually leads to lower prices for all.
The Downside to Franchise Opportunities
A legitimate franchisor will not allow you to buy into their system unless you pass a rigorous review process, which usually includes a careful analysis of your finances, your business experience, and your willingness to accept all their rules and regulations without question. Most franchise fees can run into the tens of thousands of dollars, plus you will have to spend additional money for equipment, supplies, and a location from which to operate – unless you are involved in a mobile business (which still probably requires a dedicated vehicle or two) or one you work from home. Some of your earnings every month will go toward a license fee, payable to the home office, and you may also be required to share some marketing expenses.
Business Opportunity Benefits
You will generally spend less money to acquire a business opportunity than you would a franchise opportunity. By definition alone, there is no upfront franchise fee, plus you usually keep all of your revenue rather than paying ongoing franchise or royalty fees. You are free to choose any business name you like, and even branch out into other areas as you see a need in the community. For example, if you purchased a hamburger fast-food franchise, you could only serve the items on the “approved” list. By buying a business opportunity, if you liked pies – well, you could sell whatever kind of pie you wished. You are also able to operate pretty much anywhere without fear of stepping on someone else’s toes. Franchises can have some very strict territorial guidelines.
The Downside to Business Opportunities
The acquisition of a business opportunity rarely gives you the option to use trademarks, brand names, or other elements readily identifiable to the buying public. The freedom you have to do things your own way also means your chances of success rest entirely in your ability to run a business. There is no home office support, no massive buying power for equipment, inventory or supplies, and no other business owners to consult when you’re faced with an issue that needs to be resolved. In a very real sense, you are on your own.
The Bottom Line
In many respects, deciding between a franchise and a business opportunity comes down to two main factors – how much money you have to spend, and what kind of a personality you possess. Rule-followers can become great franchisees, while people who like to go off in their own direction – maybe not so much. Be sure to weigh all the factors before you decide which is best for you.