Many choose to start their business from scratch while others choose to take advantage of business opportunities that have already shown themselves capable of turning a profit. Entrepreneurs who fall into this second category have a couple of options at their disposal: Franchises or “business opportunities”.

While franchises and business opportunities may look similar, in fact they are very different. Knowing the difference between the two is crucial and can make the difference between a successful business venture and an entrepreneurial disaster.

What is a franchise?

A franchise is defined as a business that is authorized to sell or distribute a company’s goods or services in a particular geographic area. When you open a franchise, you own the business and its infrastructure along with the right to use the franchising company’s brand, trademarks, and promotional materials. In most cases you also own the exclusive rights to sell the product in your franchise area.

In return for these rights, the franchisee (you) agree to pay an upfront fee to the franchising company. This fee can is usually significant and covers a variety services that are provided to you by the franchising company. There is often also an ongoing franchise fee that is paid on a monthly, quarterly, or annual basis.

What is a business opportunity?

A business opportunity is not nearly as structured or clearly defined as a franchise. Generally speaking, a business opportunity is a pre-packaged array of goods or services that allows the buyer to start a business with the expectation of an existing market, a promotional plan, and profitability.

What are the advantages & disadvantages of a business opportunity?

An advantage of business opportunities is that they are less restrictive to operate than a franchise. They typically cost less to purchase and rarely require ongoing franchise or royalty fees. Also, business opportunities don’t tend to limit the business owner’s selling area or require strict operational standards.

On the downside, however, business opportunities don’t provide the buyer with trademark rights or provide ongoing assistance to the franchisee. Essentially, after you buy into the business opportunity you are cut loose to succeed or fail on your own.

What are the advantages & disadvantages of a franchise?

Without a doubt, franchises are more costly than business opportunities in both the upfront fee and the ongoing royalties. However, in exchange the franchisee receives valuable services such as employee training, promotional benefits, trademark rights, etc. This can be a huge benefit, especially for entrepreneurs who are entering the world of small business for the very first time.

The geographic and operational restrictions placed on franchisees can also be viewed from a value-added perspective. Although your franchise may be limited to a certain geographic area, you will be the exclusive seller of your goods and services within that area – a guarantee that business opportunities cannot offer. Likewise, the operational standards required by many franchises provide the franchise owner with a proven and established system of quality control. You would likely have implemented similar standards on your own. With a franchise, the work has already been done for you.

Want to Learn about Franchise Opportunities?

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