Advantage And Disadvantage Of Business Opportunity

The Advantages of a Business Opportunity

Requires a lower initial fee than a franchise. Although the number of low-investment franchises has increased, the fee to get into a business opportunity is still considerably lower.

A proven system of operation or product. During crises, the parent company is there to help the licensee over the bumps.

Intensive training programs. In any new business, a lot of time and money are consumed during the learning period. A good business opportunity venture can eliminate the majority of ineffective moves through an intensive training program.

Professional advertising and promotion. Most small businesspeople don't spend sufficient money on advertising. Many business opportunity ventures supply the buyer with print advertising slicks, radio ads, TV storyboards, etc., in order to provide a better marketing effort. Some business opportunity ventures will even have a cooperative advertising agreement under which they will split the cost of print, radio or TV ads.

Ongoing counseling. Most business opportunity ventures offer support not only through training but also through counseling from a staff of experts who offer assistance that no independent could afford.

Site selection assistance. 

Purchasing power. Many times, the parent company's tremendous buying power and special buying techniques can bring products, equipment and outside services to the licensee at a much lower cost than an independent could ever get.

No ongoing royalties. In a business opportunity, unlike in a franchise, there are no ongoing royalties to pay to the seller.

The Disadvantages of a Business Opportunity

Under ideal conditions, business opportunities are a good, low-investment way to get into business with minimum risk and a good chance for success.

Poor site selection. The majority of business opportunities are consumer-oriented retail operations which rely on good location, visibility and easy access to the establishment. Most buyers of business opportunities casually accept the locations chosen for them. DON'T! There is usually no requirement for the business opportunity seller to offer ongoing support of any kind. Most smart buyers of business opportunities will negotiate the point in the agreement stipulating sources of supply in case product quality is inconsistent.

Parent-company bankruptcy. Another pitfall is the possibility of the parent company overextending itself and going bankrupt. While this is not as serious in a business opportunity as it would be in a franchise, you still run the risk of losing the business because your property contracts may have been financed through the parent company.

You should carefully investigate any business opportunity you're considering. Get a list of operators from the parent company and call them. Have a lawyer look over any agreement drafted by the parent company. Then carefully evaluate the licensor. Make sure a responsible company backs the business opportunity.

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. If it's a business opportunity that falls under the FTC rule, then it's required to disclose specific information to you.

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:

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. 

5. Check the training and experience required to run the business properly. 

6. 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?

Can you invest the same amount in the business opportunity yet operate a larger operation and get a better return on investment?

7. Research company's history. Are the business opportunities all offshoots of their regular business?

8. Is there financial strength and strong credit behind the business opportunity? Check out the bank references given by the licensor-seller; discuss the company's financial strength with the appropriate managers.

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

10. The Better Business Bureau will give you a report if others have lodged previous complaints against the company.

11. Having an attorney, accountant or business consultant conduct an in-depth study of the company may be an excellent idea.

12. Visit the headquarters of the licensor-seller.Talk to the personnel and the training director. Visit the original prototype of the business being sold. Evaluating a Potential Opportunity

Your attorney should be present when you're negotiating with the licensor-seller. Have financial representation. Your accountant should look over the financial statements of the licensor-seller. In addition, he or she should be able to check out the financial strength of the company and determine whether the business is a viable financial investment for you.

Make your own independent survey of other owners of business opportunities sold by the parent company. Are they happy with the company? Did the company do everything it promised? Is the company good to work with? A competing company will tell you in a hurry what the company's weaknesses are. You'll also get an opportunity to see whether or not the business opportunity compares favorably in terms of pricing and so on.

Check the credit of the seller. Your accountant or the person auditing the business opportunity can help you with this.

Read the disclosure statement, the purchase agreement and the advertising bulletins carefully.

Check the credibility of the parent company. In many cases, small companies are a great investment for a buyer because you generally deal with the president or the top people in the company. Are the seller's people truly interested in you? Check the performance of the parent company.Are the seller's claims backed by performance? Do the current operators you've talked to confirm the profit claims that the seller makes?

Check the company's management. Is the company going to train you? Is training at your own expense? Do you have enough money to sustain yourself while you're in training and before your business starts earning money? What kind of ongoing supervision will the company give you?

·         Determine what type of advertising program is available from the licensor. Will that advertising program work for you? Check your local market. For instance, if you're buying a business opportunity in which you'll be selling bathtub liners, will advertising in trade magazines really help? Compare the prices those suppliers quote you against the business opportunity's prices.