In most cases, the distinction between a franchise and a business opportunity is easily identified – brand recognition can point you towards a franchise opportunity, as well as marketplace positioning such as a retail outlet in a shopping mall. If you are using the Internet to shop for a franchise opportunity, you need to look for key criteria to assess venture as a business opportunity and not a franchise.
- Buyer of the opportunity, (the licensee), must distribute or sell goods and/or services supplied by the licensor or franchisor.
- The licensor must provide an outlet of distribution for the products/services being sold by licensee.
- The start-up fee should cost no more than $1,000.
- There is a written agreement between licensor and licensee.
- An FTC disclosure statement is issued at least 10 business days before the signing of a contract or exchange of money.
26 states now have business opportunity laws that restrict the selling of business opportunities without the issuing of a disclosure document that has to first be filed with that state’s designated agency. The disclosure requirements differ from state to state. Before you invest, enquire about the rights, protection, and remedies granted to you by the specific laws surrounding business opportunity ventures in your state.
Some business opportunities are packaged to look like franchises, but once you get a better grasp of what is a franchise, you’ll know the limitations of business opportunities:
- No trademark or branded strength – you have free reign to use any of the company’s logo, slogans or marketing products
- No exclusive territory
- Limited training, ongoing support, and marketing from licensor
- Dead-end outlet of distribution such as low-traffic site selection
Business opportunities usually fall into a narrow category of ventures. If you feel like you’re buying a “business in a box,” you might be looking at a “biz-opp.” Topping the list are “distributorships” where you sell another company’s products or services under your own business name. MLMs are a perfect example. Then there are “kiosk” opportunities such as vending machines and coffee kiosks in shopping malls. Here you are usually obligated to buy the inventory from the licensor.
Existing businesses can even buy into a business opportunity to add value or diversify their product or service offerings. These are sometimes referred to as “Value-Added Profit Centers” that require a minimal investment but allow business owners to offer a high value product or service under the same roof. For example, a convenience store who offers a dry cleaning outlet within the store for their customers.
