Franchise or Business Opportunity?

Franchise or Business Opportunity?Now that you've decided that you want to own your own business, you need to decide between a franchise opportunity and a business opportunity (called biz op, for short).
Both are businesses you can own, and both enable you to launch a business without having to start from scratch. There the similarities end.

What is a franchise opportunity?

A franchise is a ready-made business structure based on an established brand. In return for your initial investment and ongoing fees, you hit the ground running with a name and brand identity that consumers already know and a proven operating system regulated by the franchisor.

Examples of franchise brands.

Franchises are part of our everyday life. A few prominent categories include fast food, fitness, education and business-to-business services. Who hasn't heard of Arby's? Massage Envy? How about FASTSIGNS and Money Mailer?

What is a business opportunity?

A biz op is harder to define. When you buy a biz op, you are essentially buying a license to sell goods, commodities or services provided by the biz op seller or a supplier designated by the seller. You can offer whichever of the seller's products you want, and how you operate your business is up to you.

Examples of biz ops.

Vending machines are a common biz op. As the business owner, you buy a certain number of vending machines in a certain area and keep them filled with products you buy from the biz op seller. Another common biz op is a license to sell a particular brand of insurance.

Ten differences between a franchise and a biz op.

1. Brand awareness:
A franchise is an established brand, with built-in brand awareness and a proven operating system. Since you operate under the franchise trade name, customers know what to expect. You're not responsible for building the brand. It's already been done. With a biz op, you're buying a license to offer a product, service or commodity. Some biz ops are known brands, such as insurance companies, but many are not.

2. Operations:
As a franchise owner, you agree to follow a proven operating system covering your products, service, uniforms, vehicles, building specifications and the look of your business. As the owner of a biz op, how you run your business is totally up to you.

3. Support:
From the moment you buy a franchise, you enter an ongoing relationship with the franchisor. You will probably have regular contact with dedicated corporate staff whose support includes everything from marketing, training for you and your staff and in many cases back-office services and technology. Once you own a biz op, your relationship with the seller usually ends. Support may available, but usually at your request rather than as part of your contract. Most sellers provide neither dedicated support staff nor organized support programs. Once you open your doors, you're on your own.

4. Ongoing fees:
As a franchise owner, you agree to pay royalties either periodically or as a percentage of your sales. These fees cover all the franchise support you receive, including the dedicated support staff. Since a biz op offers no ongoing support, it requires no ongoing fees.

5. Legal disclosures:
Legal requirements for franchises include the UFOC (Uniform Franchise Offering Circular), which is based on federal and state regulations for disclosure of info such as the company history and management, problems such as litigation or bankruptcies, all fees and costs, all rules and restrictions related to ongoing business operation and the audited financial statements of the company. Biz ops are more loosely regulated. The UFOC is not required, though there may be some state rules regarding disclosure. You will have to either dig for the information or hire someone to do it for you.

6. Economies of scale:
As a franchise owner, you will benefit from the greater buying power of the group, with prices negotiated by the parent company and passed on to you. In addition, because of the recognized brand behind you, suppliers are more like to extend credit to you. If you own a biz op, you have the buying power of one.

7. Financing:
Franchisors tend to have relationships with lenders who are more willing to work with their franchisees than with independent business owners. Some franchisors even provide limited financing for special groups such as military veterans. As the owner of a biz op, you may be totally on your own when seeking financing.

8. Flexibility:
As a franchise owner, you agree to operate your business according to franchise rules. As a biz op owner, you have more flexibility. You can determine your own pricing, hours of operation and what product lines you carry. You can even totally restructure your business concept.

9. Risk:
Though no one can guarantee the success of any business, your chances of franchising success are enhanced by the fact that the franchisor already knows what it takes to succeed in terms of equipment, staffing, operations, product and service.

10. Exit strategy:
A franchise is generally easier to sell than a biz op because there are more buyers for an established proven brand. In addition, most franchisors will buy back your business and operate it as a corporate store while looking for a buyer.

Franchise vs. Biz Op: which is for you?

How much autonomy do you want? How much support? As a franchise owner, you're choosing to join a team rather than go it on your own. Talk to existing franchisees and business owners. Explore your options. Listen to your heart.