Evaluating & Buying a Franchise

Business Opportunity or Franchise

An Introduction to Franchising

What's the Difference?

Is the business I am considering a franchise or a business opportunity? For many entrepreneurs, the question of exactly what type of business they are buying is often quite baffling. Due to the many different statutes in all different states of North America, defining whether one owns a business opportunity or a franchise is difficult, and therefore warrants a clear and understandable differentiation between the two terms.

Essentially, a business opportunity can be considered a sort of "Franchise Lite" alternative. While both business opportunities and franchises involve the expansion and growth of a larger company through the creation of smaller shops, restaurants, etc., the business opportunity comes with a lot less commitment by the mother company. To reflect this - although there may not be an exact one to one correlation - the business opportunity has much fewer governmental regulations that come along with it.

So what else causes these two business growth schemes to be so different? The answer to this question can be found in what some experts in the business field like to call the "bowling ball versus the basketball" dynamic. This is used to describe the "initial, one-time" nature of the business opportunity plan as opposed to the ongoing relationship sustained between the franchisee and the franchisor.

In other words, the path of the business opportunity seems to be modeled following throwing a bowling ball; following a concerted effort on the part of its owner to guide it toward success, the bowling ball is then released and allowed to run its own course. Similarly, the entrepreneur starting up in a business opportunity will receive most of the help setting up his or her business - including consulting and support services - at the onset of the endeavor. Once established, the start up will in most cases be under no obligation to the business opportunity in terms of royalties and will conversely stop receiving services. At this point, it is essentially an independent business.

The franchise opportunity, however, is a much different story. Indeed, its way to success is likened to the course of a basketball. Why? Just as the basketball is taken dribbled down the court, passed back and forth and slam dunked in the end, so is the franchisee supported by a vast and institutionalized network of consulting services, marketing staff and other vital resources that helps to keep everyone afloat. As such, many franchise companies are designed to insure their success through systematized team efforts that include all of their members.

Now, it is important on both ends to decide whether the franchise or the business opportunity is best suited to one's specific needs. For the individual who has set up a business and wishes to see it grow, he or she should be aware of the many differences between the two types of entities, as well as the highly involved sets of regulations and governmental statutes that apply to each one. While obtaining legal advice is absolutely crucial to anyone who is serious about expanding his or her business, these guidelines are good for getting a basic idea of what one is headed into.

Another determining factor for those who are undecided between the business opportunity scheme and the franchise option is the combination of personal and financial goals and means. While both endeavors present similar possibilities in terms of long term success, each involves a vastly different approach as well as methodology. Individuals starting their own companies should be aware that franchises more often than not require much larger initial investments. Yet due to the money generated through royalty fees, this initial investment tends to yield much more in the long run.

On the other side of things, the individual entrepreneurs who are interested in either becoming franchisees or starting up with a business opportunity should be made well aware of the differences that these two options entail. While the business opportunity would indeed grant a much greater level of independence, one should only engage in this model if he or she is certain to not need the support network that a franchise would provide further on down the road. That's because business franchisees are often able to take advantage of continued support - as well as high brand name recognition - in return for continual royalty payments.