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Everyone will be hearing a lot from the newest addition to our staff: Digital Marketing Manager Hired Margaret Mallonée! This hire was a strategic move to enhance our staff for the new digital media platform we will be introducing in the weeks and months to come. Chicago,...

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Resource Center > Article
What Are The Disadvantages of Buying A Business Opportunity Versus A Franchise?
30 Nov 09 Posted by: Kathleen C Lanza
in Start-Up
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While a Business Opportunity can have a lower threshold of entry investment with a fairly good shot of success, it doesn’t mean you’ll end up winning if you buy a Business Opportunity system versus a franchise system. In fact, a Business Opportunity has a couple of major pitfalls of which you should be aware. Understanding these will allow you to better evaluate the risk levels involved in starting a new venture.

One of the biggest risks in buying a Business Opportunity versus a franchise is that the parent company can go bankrupt. If the parent company does in fact go bankrupt you are in essence out of business. In many cases franchises are better protected against bankruptcy. However, it can happen to franchises too so ask in advance what your exposure is if the parent company goes belly up.

Next, when buying a Business Opportunity versus a franchise system consider your location or assigned territory. Many Business Opportunities are retail-oriented and your location can literally make or break your business. However, that isn’t only a retail consideration. You need to consider your potential territory options too. A Business Opportunity may not offer an exclusive territory. In other words, you might be working in the same territory as one or even a dozen people who are all potentially selling the same product or service to the same buyers. Buying a protected or exclusive territory is a critical feature to consider. Franchises are often designed with this in mind and protected territories are usually offered. You really want to ensure that you’re buying the best and most exclusive territory available. This will often come down to your geographical constraints and the parent company’s decision on what they can offer you. Remember that you can always say no and keep searching for the right fit.

Two other things to consider: support and training. The support and training you are provided with can make a huge difference between making a lot of money or not making a dime. Often, franchise systems offer great training and support that’s ongoing, as well as tried, tested, and proven methods that work for other franchise owners already.

Business Opportunities often lack this benefit. Many systems you purchase are for a flat fee and thereafter you’re pretty much on your own. If you are in need of some technical support there may be no one to turn to. Additionally, if you run into marketing concerns you might have to hire your own marketing expertise at additional cost. Lastly, should you require any sales training the chances of receiving the necessary support from a business opportunity are slim. Usually there are no requirements for the Business Opportunity parent company to offer any ongoing training and support.

Once you have narrowed your selection down to two or three Business Opportunities as well as a franchise option, it is highly recommended that you do some sleuthing on your own. You don’t have to be Sherlock Holmes to get to the bottom of a mystery. However, you should obtain a list of other people who are currently operating the same Business Opportunity or franchise and ask questions by contacting them directly. Also, hiring a qualified lawyer in advance to review everything while covering all your bases may be wise and beneficial for you. It can save you any potential problems down the road.

In my next blog, I will discuss exclusivity clauses so that you can negotiate the best deal before buying. Also, revisit on Wednesday to read about how to source a lawyer that is trained to work with Business Opportunities, Distributorships and Franchise contracts.

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