Business Opportunities | How-to Guides for running your business from Business.com

The best meals are usually made from scratch. The best businesses, however, are sometimes pre-packaged. That’s right: You don’t have to reinvent the wheel just to become a business owner. Instead, you can purchase a business opportunity.

A business opportunity is similar to a franchise in that it is a business concept owned by someone else that can be licensed for a fee. When you buy a business opportunity, however, you are generally buying the business outright and must operate it under your own name, with your own marketing dollars and with your own expertise.

According to the Federal Trade Commission, a business qualifies as a business opportunity if:

1. The buyer must distribute goods or sell services supplied by the seller.
2. The seller must help the buyer secure a retail location or an outlet of distribution.
3. There must be a cash transaction of at least $500 between the buyer and seller within six months of the buyer opening for business.
4. All terms and conditions of the buyer and seller’s relationship must be stated in writing.

Action Steps
The best contacts and resources to help you get it done

Decide: franchise or business opportunity?

Business opportunities and franchises both involve the sale of an existing business concept to an entrepreneur and both involve the sale of licensed goods or services. A franchise, however, implies a close partnership between buyer and seller throughout the life of the business while a business opportunity implies the sale of a start-up that the business owner must manage and grow alone.

I recommend: FranChoice’s Franchise Buying Guide includes a chart where you can compare the pros and cons of franchise, business opportunity and independent business ownership. Before moving forward with any option, look at Entrepreneur.com’s “Should You Be a Franchisee?” checklist, which is designed to help prospective business owners decide if they are ready to purchase an opportunity.

Know the rules

Before you begin the process of looking for a business opportunity, make sure you understand what, exactly, one is. Brush up on federal and state definitions so that you know what’s expected of you as a buyer and what to anticipate from a seller.

I recommend: Business opportunities are currently regulated at the national level by the FTC’s Franchise Rule, but may soon be regulated separately by the FTC’s proposed Business Opportunity Rule [PDF link], which was drafted in April 2006. Additionally, 26 states have laws defining business opportunities and regulating their sale.

Shop around

There are several types of business opportunities. A few of the most common are distributorships, which involve the sale of someone else’s product or service without the use of that person’s trade name; rack jobbers, whereby a distributor sells and markets someone else’s products for sale on designated racks at various retail stores; and vending machine routes, in which you buy the vending machines and merchandise for a series of designated locations.

I recommend: If you’re interested in a business opportunity, but aren’t sure where to look for one, start either at BusinessOpportunity.com or at Entrepreneur.com’s Business Opportunity Finder; both are comprehensive directories of business opportunities indexed by category. Other places to browse include classified ads, such as The New York Times’ Business Opportunities listings, and trade shows, such as the National Franchise and Business Opportunities Show, held throughout the year at locations across the United States and Canada.

Research the parent company

Before buying a business opportunity, make sure that its parent company is credible, secure and successful. Pay special attention to its financial performance, its reputation and its competition.

I recommend: The marketplace is full of fraudulent business opportunities. Protect yourself by doing your homework. The FTC hosts a site where business owners can find information about phony business opportunities and report fraudulent sellers. Don’t stop there, though. If you’re considering a business opportunity, research the parent company’s history and performance at Hoovers, its reputation with the Better Business Bureau and its financials with the Securities and Exchange Commission.

Negotiate your purchase

All business opportunities must be outlined in writing, so make sure you have documented all of your conversations. Focus your negotiations on minimizing costs and maximizing the transfer of start-up supplies and equipment. Also, try to secure as much support as possible in the areas of training and marketing.

I recommend: It’s critical to have an experienced attorney on your team during business opportunity negotiations. Look for professionals who specialize in franchising; you can search for franchise attorneys in your area at LawInfo.com.

Tips & Tactics
Helpful advice for making the most of this Guide

Pay close attention to the FTC disclosure statement. The disclosure document contains all the information you need to make an informed investment decision; it is federally required and must be delivered at least 10 days prior to signing an agreement. If you don’t have a disclosure statement, don’t sign anything.
Most business opportunities require a start-up fee of less than $1,000—significantly less than is required for a franchise.
Because of its size and credit line, a parent company can often obtain better financing options than an individual business owner can; be sure to leverage those financing options in your final agreement.
Perhaps the biggest advantage of business opportunities is that the business owner owes no ongoing royalties. Unlike in franchise arrangements, your profits are yours to keep.
If you’re buying a business opportunity, beware of several common pitfalls, including poor site selection by your parent company, a lack of ongoing support from your seller, restrictive exclusivity clauses in your agreement and potential bankruptcy of your parent company.
Before purchasing an opportunity, be sure to speak with current operators. Ask them if they’re happy and find out what challenges they’ve encountered that might be indicative of system-wide problems.
Be sure to collect a pro forma—a projected financial statement—from your parent company in order to assess what you can reasonably expect to earn from your new business venture.

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