Here is an overview of the differences between business opportunities and franchise, and how you can determine which is the one for you.
Business Opportunities vs. Franchises the age old question – which is best for you? Do you dream of running your own business opportunity? If so, what does that mean to you? In your daydreams, how do you spend your day? Is it sitting at Starbucks with your laptop? Driving around, checking in with other businesses? Running a fast-food emporium or a retail store?
Business opportunities abound. If that is the lifestyle you crave, your choices are abundant. But you need to narrow it down to find the one that suits your lifestyle, your psychology, your preferences and your finances.
Confused about Biz Opps, Franchises, Licensee and Distributorships?
It’s common to call any chance to start your own business a biz opp, or business opportunity. But there are actually many specific methods, and terms, for owning a business.
Here is a primer so you can tell the difference among opportunities.
Business Opportunities. Technically, this can mean a company offering would-be entrepreneurs, for a fee, the chance to go into business. The three main models are rack jobbing, distributorships and licenses. These opportunities are regulated on both the federal and state level because of the high rate of scams.
But in everyday life, the term business opportunities has come to mean any idea that a person thinks he can make money from, either on his own or by using materials, information or services from someone else. It is also used when people talk about franchises.
Here is a look at the three major models.
Rack jobber. This refers to buying a route from a company and servicing the clients along the route by restocking the company’s products. This can be everything from candy and gumball machines to greeting cards to t-shirts.
Distributorship. In this model, the entrepreneur buys the rights to sell a company’s product in a specific territory. This is often exclusive, but not always. He seldom uses the company name, logo or other identifiers when selling the product, unlike with a franchise.
Licensee. The entrepreneur in this model buys the right to access proprietary data or technology. Specific products or services are created from what is licensed and offered by the entrepreneur to a target market.
Business opportunities like these give entrepreneurs freedom and flexibility. They can come up with their own ideas for selling and distribution. As a rule, they are usually cheaper too, because the owner doesn’t need to pay franchise royalty fees.
How Franchises Are Different
Franchises offer soup-to-nuts setup, marketing, financing and ongoing training in most cases. The entrepreneur owns his own franchise unit. However, they must follow the guidelines and requirements of the franchise. In most cases he also needs to pay a regular franchise fee to the home company. The upfront fee to buy the franchise is often $50,000 or more, putting them out of the range of most new, home-based entrepreneurs.
When you buy a franchise, you swap your freedom for the support of the company. You must follow their rules for packaging, location, brick and mortar appearance and marketing. In exchange, you get expert guidance on marketing, funding, sales promotion, as well as access to lower costs for products and materials. You also have a regional or national brand that already has a following.
Are Biz Opps a Good Investment?
Small Business Administration statistics say that almost 66% of all small businesses pull through for their first two years. That means two-thirds are making a go of it. And about half survive for five years.
These statistics are at odds with the commonly quoted “fact” that 90% of all businesses close within the first year. It ain’t so! Though it is true, looking at the 50% after five years statistic mentioned in the paragraph above, that one in two startups are no longer in business after five years.
That is why many people prefer to buy an established business that is for sale, or to buy a license, a route or a distributorship. These have a track record of satisfied customers. With research, training and effort, a determined entrepreneur stands a good chance of making a go of the biz opp.
Are Franchises a Good Choice?
Because franchises offer a formula that has been tested, they often are profitable. But there are other factors to consider. Here is a look at four of them.
Upfront investment. If you work a 9-to-5 job, have a family, a mortgage, and/or college loans to pay off, how much can you afford to invest in a franchise? Low-cost franchises start in the $15,000 to $20,000 range. Prices over $200,000 are not uncommon. In addition, many require that you buy or lease property, a store and invest in inventory. These costs put them out of the range of many would-be entrepreneurs.
Following the rules.Franchises are profitable because they all follow the same guidelines and criteria. The stores and eateries look the same. People dress the same. They sell the same products. There is very little room to express a personal brand when you buy a franchise.
Ongoing payments. When you buy a franchise, you need to make royalty payments on a regular basis, buy inventory from company-approved or owned suppliers and invest in marketing plans that they devise. Your startup costs are just the beginning. For as long as you own it, you will be paying the mother-company money.
Not a kitchen-table choice. Many entrepreneurs are attracted to the idea of owning their own business so they can run it from the kitchen table or the local espresso shop. This is seldom the case with a franchise. Many need at least an office with employees. Most require a brick and mortar establishment of some type. This can defeat the purpose of becoming an entrepreneur, for many people.
Which Is Best?
Both franchises and business opportunities can be profitable. Which you choose depends on:
- the amount of money you have
- how much risk you want to take
- how much time you want to spend running your business and what hours you want to be on call
your lifestyle: how do you picture your idea day, running a fast food shop or using a laptop on your couch at home?
Business Opportunities or Franchises: Each can be an excellent choice. The trick is to be clear about your finances, your risk tolerance and how you want to spend your time.