So called "business opportunities" present another way for would be entrepreneurs to strike out on their own

In between starting your own business from scratch and purchasing a franchise, with all its rules and restrictions, is a sort of hybrid category, known as the "business opportunity." In 1979, the Federal Trade Commission (FTC) set out conditions that broadly define a business opportunity. In general, a business opportunity involves the sale or distribution of goods or services provided by a licenser, who must help secure a retail outlet for the goods or services the licensee is selling.

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FTC rules require that a cash transaction of at least $500 must occur between the licenser and licensee within six months of the agreement. Finally, all terms of the agreement between licenser and licensee must be in writing. (Be sure to check on any state rules governing business opportunities: A number of states have imposed additional legal requirements, but most have not.) In most instances, a business opportunity consists of the purchase or licensing of products or services from a company to start a business using the trademark of the products or services purchased

Some business opportunities merely involve the purchase of products for resale, with little or no support; others offer training or other forms of support to get the new business running. Unlike franchises, however, business opportunities usually lack the cumbersome operating rules and policies demanded by many franchisors. Business opportunities also generally call for an attractively low initial investment cost anywhere from $50 to $1,000, usually for products or equipment. This broadens their appeal to would be small business owners, who want the security of selling an already established brand, but prefer to forego the high cost and dictatorial nature of many franchises.

Business opportunities come in a variety of forms. You can become a distributor for a particular company's products or services without adopting their trade name, offering only their goods from your retail establishment, home, booth, or kiosk. In some cases, the business opportunity is a turnkey operation, offering you supplies, marketing materials, varying levels of sales support, and even assistance in setting up your outlet. Vending machine operations are another major area of business opportunities. Investment costs are higher with vending machines, since the vending machines must be purchased (usually at a cost of several thousand dollars each) in addition to fees paid to the property owners of the locations where they will be placed (malls, office buildings, stores, schools). Other business opportunities involve becoming essentially a product salesman, keeping a company's products on specifically assigned shelves of various stores in a given area. The company providing the products generally negotiates the store shelf assignments, but is up to the rack jobber to keep the shelves stocked with the right products.

 

While business opportunities demand less creativity than starting your own business from scratch and more independence than a franchise, they have been notoriously plagued by fraud. In an attempt to combat fraudulent schemes, the FTC has issued mandatory rules governing the issuance of business opportunities, including the provision that an FTC disclosure statement must be provided to the purchaser of a business opportunity a minimum of ten days prior to the close of a contract or binding agreement. If the provider of a business opportunity declines or delays providing an FTC disclosure statement, avoid the deal completely, no matter what other assurances are offered.

 

In addition to lower initial costs, business opportunities offer some significant advantages over franchises. First, business opportunities don't demand a percentage of your monthly sales (in addition to what you already paid to purchase the goods or services) simply for using the company's name. Second, the company behind a business opportunity may leverage its purchasing power to obtain supplies, equipment, and services for its licensees far below normal costs. Finally, larger providers of business opportunities often offer more favorable financing options and lines of credit than could be obtained by an independent business owner from a financial institution.

 

However, many business opportunities come with exclusivity arrangements, offer poor locations to licensees, and little recourse if the company decides to end its support. You should have a lawyer scrutinize any contract with a company offering a business opportunity before it is signed or any investment made. And you should regard any claims of fantastic profits from minimal investment with great skepticism.

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