How to Choose Between a Franchise and a Business Opportunity

For most people, a franchise and business opportunity seem pretty much alike. Both invite you to purchase a package of goods, services and business concepts and both offer you the chance to take advantage of a business idea that has already proved to be successful. Both provide some training, handholding and access to a valuable marketplace.

Significantly, there are actually rather large differences between the two concepts. While these essential distinctions may appear subtle, identifying and understanding them can help you to protect yourself when you take the plunge into your new business.

One of the sneakiest differences between a franchise and a business opportunity is the role of a trademark. The licensing of trademark rights is a stamp of franchising. In fact, every franchisee of a franchise is operating under a trademark license. The consistent image depicted by these and other franchise systems symbolizes their strength in the marketplace, and is the direct result of a trademark license. If a program grants you the right to operate under a trademark owned by the seller, you are most likely looking at a franchise rather than a business opportunity.

Do not underestimate the value of that trademark. The well-known marks of popular franchises such as Macdonald’s and Pizza Hut are influential consumer magnets. This allure is formed and maintained by years of national advertising. In fact, we have grown up with these brand names. We just have to see the big yellow ‘M’ and we know exactly which franchise it symbolizes. The power of a franchise trademark is that it promises consumers constancy. People will know exactly what to expect. On the other hand, weaker trademarks, such as those of a new franchise system or those new to your area, will not have that same marketplace pull and will not be as valuable to the franchisee.

Franchises put significant emphasis on training and ongoing assistance in the operation of the franchise business. The entire appeal of franchising is being in business for yourself, not by yourself. The know-how and services is supplied by the franchisor throughout a long, supportive business relationship. However, most business opportunity sellers offer self-contained programs with some instruction and little or no ongoing business support. That makes a big difference!

Another distinction between franchises and business opportunities is the cost. Franchise fees can be anywhere between $20-30 000 more with a total business investment of $50 000 and up. In contrast, most business opportunity purchase prices are low enough to be put on a credit card, running from a few hundred to a few thousand dollars.

Federal and state laws subject the two types of programs to similar disclosure and registration requirements, but the rate of observance is significantly higher in the franchise community. This means a potential franchisee is more likely to receive a disclosure statement known as the UFOC (the Uniform Franchise Offering Circular) than is a business opportunity investor.

Knowing these specific characteristics is essential when deciding between the two. Choose correctly and decisively.

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