Decide: franchise or business opportunity?

Business opportunities and franchises both involve the sale of an existing business concept to an entrepreneur and both involve the sale of licensed goods or services. A franchise, however, implies a close partnership between buyer and seller throughout the life of the business while a business opportunity implies the sale of a start-up that the business owner must manage and grow alone.

I recommend: FranChoice’s Franchise Buying Guide includes a chart where you can compare the pros and cons of franchise, business opportunity and independent business ownership. Before moving forward with any option, look at Entrepreneur.com’s “Should You Be a Franchisee?” checklist, which is designed to help prospective business owners decide if they are ready to purchase an opportunity.

Know the rules

Before you begin the process of looking for a business opportunity, make sure you understand what, exactly, one is. Brush up on federal and state definitions so that you know what’s expected of you as a buyer and what to anticipate from a seller.

I recommend: Business opportunities are currently regulated at the national level by the FTC’s Franchise Rule, but may soon be regulated separately by the FTC’s proposed Business Opportunity Rule [PDF link], which was drafted in April 2006. Additionally, 26 states have laws defining business opportunities and regulating their sale.

Shop around

There are several types of business opportunities. A few of the most common are distributorships, which involve the sale of someone else’s product or service without the use of that person’s trade name; rack jobbers, whereby a distributor sells and markets someone else’s products for sale on designated racks at various retail stores; and vending machine routes, in which you buy the vending machines and merchandise for a series of designated locations.

I recommend: If you’re interested in a business opportunity, but aren’t sure where to look for one, start either at BusinessOpportunity.com or at Entrepreneur.com’s Business Opportunity Finder; both are comprehensive directories of business opportunities indexed by category. Other places to browse include classified ads, such as The New York Times’ Business Opportunities listings, and trade shows, such as the National Franchise and Business Opportunities Show, held throughout the year at locations across the United States and Canada.

Research the parent company

Before buying a business opportunity, make sure that its parent company is credible, secure and successful. Pay special attention to its financial performance, its reputation and its competition.

I recommend: The marketplace is full of fraudulent business opportunities. Protect yourself by doing your homework. The FTC hosts a site where business owners can find information about phony business opportunities and report fraudulent sellers. Don’t stop there, though. If you’re considering a business opportunity, research the parent company’s history and performance at Hoovers, its reputation with the Better Business Bureau and its financials with the Securities and Exchange Commission.

Negotiate your purchase

All business opportunities must be outlined in writing, so make sure you have documented all of your conversations. Focus your negotiations on minimizing costs and maximizing the transfer of start-up supplies and equipment. Also, try to secure as much support as possible in the areas of training and marketing.

I recommend: It’s critical to have an experienced attorney on your team during business opportunity negotiations. Look for professionals who specialize in franchising; you can search for franchise attorneys in your area at LawInfo.com.