Franchise opportunities provide entrepreneurs a chance to start their own business without many of the risks associated. For many, this is an ideal arrangement where the up-front costs to the owner are specific and predetermined, and the owner benefits from the franchisor’s established business model and brand. The legal terms between the franchisee and franchisor are defined in the franchise agreement, and their relationship is clearly defined.
But what distinguishes this type of relationship from a business opportunity? When established businesses give potential owners the opportunity to run a part of the business for them, there are legal ramifications and requirements—and those determine the business relationship between the two. What are the responsibilities of the franchisor? What are the responsibilities of the franchise owner? Defining these helps distinguish a franchise vs a business opportunity.
Let’s take a look at both to understand the differences.
What is a business opportunity?
The term “business opportunity” isn’t a catch-all for any commercial opportunity for business owners; it actually refers to a fairly specific set of requirements as defined by the Federal Trade Commission. In the industry, many refer to a business opportunity as a “biz op” for clarity and to distinguish it further.
Similar to a franchise, a biz op essentially sells its established business model to a business owner. The primary difference is in the amount of control the business seller grants the owner. In a biz op, it’s typically an up-front transaction: the business sells the product, service, or license to an owner, and the owner is free to operate. The models that are most common include:
Turnkey: here, products and services are ready to be sold after purchase without any additional requirements, input, or control from the seller.
Rack Jobber or Vending Machine Routes: as the name implies, the buyer purchases specific restocking routes from the seller.
Work at home: typically, this involves the buyer performing a service or task from home, and selling the completed version back to the seller—like envelope stuffing, document prep, or marketing material operations.
Distributorships: or when the entrepreneur sells the business’ product as its own.
License: the entrepreneur gets the rights to access data or technology from the purchaser to then sell product or services.
Once the initial payment is made by the entrepreneur, there aren’t continued fees like a franchise. On the flip side, there’s very little support from the seller to the owner.
What is a franchise opportunity?
So why would a potential business owner want to buy into a business where they have to pay a portion of their sales back to the seller, or continue paying franchise fees? Typically, business owners want to engage in opportunities where they have the most control—but that’s not always the best route. And there are a lot of successful franchises that would argue it is a better model.
A franchise opportunity differs from a biz op because the seller continues to play an integral part after the initial investment by the franchisee. This is the opposite of set-it-and-forget-it. The benefit, though, is that the franchisee receives far more support from the franchisor.
Franchisees often receive training, marketing, and additional support that’s ongoing. The franchisor wants to see them succeed because their growth is dependent on one another. Franchisees also benefit from branding: unlike a biz op, franchisees use the franchisor’s branding and all that comes with it, including popularity and repeat customers.
Downsides to a franchise opportunity? Franchisees typically pay a higher fee up-front to get their franchise started. Biz ops typically have low up-front costs. Also, franchisees will typically pay monthly fees back to the franchisor based on a percentage of their overall sales. But when you look at the coordination involved in ensuring that franchise’s success, those fees make a lot more sense.
Is a franchise a business opportunity?
Franchises all fall under business opportunities, but not all business opportunities are franchises. Both franchises and business opportunities involve selling a packaged business model to an entrepreneur. But the franchise requires a more established relationship between the franchisee and the franchisor, whereas a biz op typically is a one-time sale of a part of the business.
When we look at business franchise examples, the relationship between the franchisee and franchisor is defined, and beneficial to both parties. For example: cleaning services. Let’s look at carpet cleaning, specifically.
As a business franchise, the entrepreneur who buys into the franchise is provided the equipment, training, process, and branding of an established business. This will result in repeat sales with the potential to last over a long period of time. More control is given to the franchisor, but with added benefit.
Want to learn more about potential franchise opportunities, see more examples, and which might be the best for you? Franchise.com provides unique tools and resources to show you franchise options, important data about potential franchise opportunities, and how you can get started. Visit today to learn more or browse franchises in their database.