Homebased franchises and business opportunities offer investment
opportunities built on a truly irresistible principle: Own a
business, be your own boss, work out of your home and leave behind
that hideous commute.
The basic appeal may be the same, but franchises and business
opportunities are more different than they are alike. They share
DNA--they both offer an opportunity to begin a new business--but
each has distinct pros and cons. Understand those key differences,
and your search for that perfect business investment can really pay
off.
Comparing Investments
Lay the two investment concepts side by side, and their
fundamental differences become evident. The similarities are simple
enough: The investments both enable you to begin a business.
That's about it for similarities. Every other aspect of the two
investments falls in the differences column--the business
opportunity is a one-time purchase, usually a part-time effort, and
there is no continuing relationship with the seller. By and large,
it is a smaller investment and does not feature ongoing royalties.
The seller is a product provider, although some inexpensive
guidance material is usually offered with the purchase. Trademark
rights are usually not licensed to the buyer. The business
opportunity seller is generally not available to provide business
assistance when things go wrong. You're on your own.
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Franchising is the more sophisticated investment-sophisticated
in the sense of the greater number of moving parts. It is generally
a full-time, absorbing business experience. The investment can be
substantial; a freestanding franchised restaurant can easily cost
you $500,000 in total investment. That said, the hottest growth
sector in franchising today is the homebased business franchise.
These programs are lower-level investments, often totaling no more
than $30,000 to $40,000.
The franchisor is your operations partner, providing intense
training and ongoing handholding. Of course, you buy that support
for a price: You'll typically pay a $10,000 to $30,000 initial
franchise fee and 3 to 7 percent of your business's weekly or
monthly gross sales. You receive the right to identify your
franchised business with the franchisor's (preferably
well-established) trademark and to use its (preferably proven)
operating techniques. When problems occur, the franchisor is there
to walk you through them. You have the intrinsic benefits of
purchasing power-as a member of a franchise system, you benefit
from the strength of large numbers of buyers (think savings in
volume discounts) when it comes to purchasing inventory and
supplies. With a franchise, you have a valuable senior partner in
your business.
With a business opportunity, you buy a package of goods and
services, and there is little or no continuing relationship. If
there is a continuing relationship, it's usually no more than
that of a product supplier to your business.
Originally published in the May 2005 issue of Entrepreneur's StartUps
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