How to Research a Business Opportunity

How to Research a Business Opportunity

Protect yourself by learning what a business opportunity really is, how the government regulates them, and the steps you should take to ensure you've found the best opportunity available.

Just what is a business opportunity? That question has plagued a great many people trying to decide whether to buy a current independent business, a franchise, or what we'll refer to in this text as a business opportunity. To allay the confusion, we offer a simple analogy. Think back to elementary school when your teacher was explaining the difference between a rectangle and a square. A square is also a rectangle, but a rectangle isn't necessarily a square. The same relationship exists between business opportunities, independent businesses for sale and franchises. All franchises and independent businesses for sale are business opportunities, but not all business opportunities meet the requirement of being a franchise nor are they in the strictest sense of the word independent businesses for sale.

Not every state with a business opportunity law defines the term in the same manner. However, most of them use the following general criteria to define one:

1. A business opportunity involves the sale or lease of any product, service, equipment, etc. that will enable the purchaser-licensee to begin a business.

2. The licensor or seller of a business opportunity declares that it will secure or assist the buyer in finding a suitable location or provide the product to the purchaser-licensee.

3. The licensor-seller guarantees an income greater than or equal to the price the licensee-buyer pays for the product when it's resold and that there is a market present for the product or service.

4. The initial fee paid to the seller in order to start the business opportunity must range between $400 and $1,000.

5. The licensor-seller promises to buy back any product purchased by the licensee-buyer in the event it cannot be sold to the prospective customers of the business.

6. Any products or services developed by the seller-licensor will be purchased by the licensee-buyer.

7. The licensor-seller of the business opportunity will supply a sales or marketing program for the licensee-buyer that many times will include the use of a trade name or trademark.
The laws covering business opportunity ventures usually exclude the sale of an independent business by its owner.

You can readily see that the sale of business opportunities rule is quite different from the sale of an independent business. When you're dealing with the sale of an independent business, the buyer has no obligations to the seller. Once the sales transaction is completed, the buyer can subscribe to any business operations system he or she prefers. There is no continued relationship required by the seller. Business opportunity ventures, like franchises, are businesses in which the seller makes a commitment of continuing involvement with the buyer.

Franchises vs. Business Opportunities

As a rule of thumb, a franchisee receives more support from the parent company, gets to use the trademarked name, and is more stringently controlled by the franchisor. Business opportunities, on the other hand, don't receive as much support from the parent company, generally aren't offered the use of a trademarked name, and are independent of the parent company's operational guidelines. As we've previously noted, there are numerous forms of business opportunity ventures. Some are even turnkey operations similar to a lot of package-format franchises. These business opportunities provide everything you could possibly need to start a business. They help you select a location, they provide training, they offer support for the licensee's marketing efforts, and they supply a complete start-up inventory.

Unlike a package-format franchise, however, these types of business opportunity ventures aren't trademarked outlets for the parent company. The company's name, logo and how it's legally operated are left solely to the licensee. Many times the only binding requirement between the seller and the buyer is that inventory be purchased solely through the parent company. Of course, all these stipulations are outlined in the disclosure statement and contract.

Guidelines for Choosing a Business Opportunity

First make sure your business opportunity of choice complies with all business opportunity statutes--which vary from state to state--and is registered in states where required. Next, find out if the business opportunity you're interested in provides an offering prospectus to buyers.

When choosing a business opportunity, keep in mind that if you buy an opportunity from a company with a sizable number of outlets that's been in business for at least three years, you'll pay more for this established concept that you would for a newer one. If you're considering a more recently established business opportunity, you should check out the parent company's history to evaluate its success and longevity in its particular field of operation.

If you were to ask a business consultant how to evaluate the "right" business opportunity for you, you would probably receive these guidelines:

1. Make an honest evaluation of yourself and your abilities. If you've been behind a desk for many years, will you be happy calling on businesspeople and selling them an intangible service? If you've been a field salesperson for years, will you be satisfied selling snack foods behind a counter?

2. You must run your business enthusiastically. Will you be happy introducing a new product or an unusual service that the public knows nothing about? Can you generate excitement for an item not nationally advertised?

3. You must have complete knowledge of the product or service with which you are involved. If the parent company gives you little or no training in technical or management know-how, be wary of the business opportunity. If the licensor-seller has organized all the operating knowledge into a standard operating manual, look with favor upon this business opportunity.

4. Make a market evaluation of the product or service to be offered. Is the time right to introduce it to the public? Is there a need for this type of item, and what is its potential in relation to competition?
5. Find out how many buyers have been in the business successfully for a respectable period of time. A legitimate business opportunity will even provide you with phone numbers of other buyers, so you can verify that they're generally satisfied with the opportunity and that the seller is capable of fulfilling his or her promises.

6. Check the training and experience required to run the business properly. Is there a suitable curriculum of training? What is the scope of training? Does your background fit its requirements?

7. What is the company's profit ratio to sales; to time and service requirements; and to the financial leverage requirements? Can you make more in another type of business?

8. Do you have to work more hours to make the same amount you do now? Can you invest the same amount in the business opportunity yet operate a larger operation and get a better return on investment?

9. Check with current operators to see how they're making out. Are they happy with their businesses? What problems do they have, if any, that are common to all units sold?

10. Research company's history. Is it a new firm with little expertise and experience? Is it an older firm whose regular products have satisfied customers for years? Are the business opportunities all offshoots of their regular business?

11. Is there financial strength and strong credit behind the business opportunity? Can the licensor-seller give you an escrow agreement to deliver a building, equipment, leasehold improvements, inventory, etc., as the unit is made ready for your use? Check out the bank references given by the licensor-seller; discuss the company's financial strength with the appropriate managers.

12. Evaluate the policies and plans of the company with the associations and business groups in which the parent company or seller is involved.