What is the Difference between a Franchise and a Business Opportunity

When you are looking for a business opportunity, it is important to understand the difference between a franchise and a business opportunity.

Franchise Defined

By definition, a franchise is a business model that has been proven to be successful. In a franchise you not only purchase the business model, but also the rights to sell particular goods and/or services.

A franchise agreement is signed by both parties, detailing what is provided by the franchisor and also what is expected from the franchisee. The franchisee must follow the business model exactly. Any deviations would need the prior approval of the main office.

The franchisor charges the franchisee ongoing royalty and marketing/advertising fees. Although this venture is a bit more expensive than the licensed business opportunity outlined below, additional benefits such as brand recognition are most likely to be intrinsic.

Licensed Business Opportunity Defined

A licensed business opportunity is similar to a franchise; however there are some differences.

This type of opportunity is typically less expensive than a franchise. Royalties are not a requirement. Also, since the license is the only purchase made, rather than an entire business model, franchise fees and marketing fees are not charged.

In addition, the licensed business opportunity contains fewer restrictions. For example, not all decisions have to be approved by the main organization. Also, many licensed business opportunities come with graphics and instruction for use, but licensees are not required to use them.

Examples of Licensed Business Opportunities

Licensed business opportunities in general may include certain types of businesses as kiosks that are located in malls. Also, there are home based business opportunities for which a license is purchased, such as operating a cosmetic sales business. Some licensed business opportunities may be referred to as a "business in a box," as you are provided everything you need to get started.

Finally, it is important to keep in mind that there are positives and negatives to both franchises and licensed business opportunities. Evaluate each type of opportunity thoroughly to decide what would work best for you.