Business opportunities can offer attractive investment options for entrepreneurs who want to start their businesses with established products or services. While business opportunities often are confused with franchises, they have a distinct set of characteristics that typically include lower startup costs and fewer, if any, restrictions on how individual businesses operate after the initial investment is made. Often described as a "business within a box," a business opportunity is a prepackaged investment solely owned and managed by the buyer after its purchase. With options that include several types of business formats in consumer or commercial industries, you'll find that business opportunities are structured to allow you to put your own mark on selling a proven commodity.
With typically lower entry fees, business opportunities are more accessible to a broad population of first-time entrepreneurs ranging from recent college graduates to retirees seeking second careers. As a result, regulations are in place to protect inexperienced or vulnerable buyers from investing in business opportunities promoted by unscrupulous sellers. By emphasizing seller transparency, federal and state laws help prospective buyers develop realistic expectations for their investments. Required seller disclosure documents serve to clarify the structure, history and success of a specific business opportunity, while also detailing what a buyer can expect after completing the transaction.
The U.S. Federal Trade Commission (FTC) oversees the sale of business opportunities at the federal level. In March 2012, the FTC enacted the Business Opportunity Rule to standardize the type of information sellers are required to provide to potential buyers. The law makes it easier for buyers to get the facts they need to make a sound investment decision. The rule also expanded the FTC's definition of a business opportunity to extend its regulation over a wider range of transactions. According to the Business Opportunity Rule, a transaction that meets the following criteria qualifies for FTC regulation as a business opportunity:
An arrangement between a seller and a buyer in which the buyer enters into a new business; and
The buyer makes an initial payment of $500 or more within the first six months of operation to close the transaction; and
The seller makes an agreement, orally or in writing, to provide the buyer with some type of initial assistance that may include:
Providing locations for displays, vending machines or other equipment paid for or leased by the buyer; or
Providing outlets or customers where the products or services can be sold; or
Promising to buy back goods or services produced or manufactured by the buyer.
Qualifying business opportunities must give prospective buyers a disclosure document within seven days prior to finalizing a transaction. The one-page form requires that sellers provide:
The names and contact information of the business and the salesperson offering the business opportunity
An earnings statement to justify any earning claims
Details related to criminal or civil actions related to misrepresentation, fraud or violation of any FTC law that occurred in the 10 years prior to the prospective transaction
Terms of the seller's refund or cancellation policy
The name, state and telephone number of all individuals who purchased the business opportunity within the previous three years or a list of 10 buyers closest to the prospective buyer's home.
In addition, 26 states have individual guidelines directing how business opportunities operate. However, each state defines a business opportunity differently, so not all business opportunities meet both federal and state regulation criteria. Sellers of business opportunities in states that regulate the industry are subject to both the FTC and state guidelines. These businesses have to provide a prospective buyer with two different sets of documents.
As an owner of a business opportunity, you'll be responsible for determining where your product or service fits in the marketplace. With the freedom to design your own business model and marketing plan, you'll want to ensure that you're buying into an in-demand and saleable commodity. In addition to background information about the seller of a business opportunity, it's important to do your own research about the industry in which you plan to operate your business. Starting with the right product or service can give you an advantage in identifying and closing sales.
In 2018, financial analysts predicted where new business owners were most likely to realize the greatest gains in starting a new venture. If you're considering purchasing a business opportunity, goods and services in these industries and those that support them may offer lucrative results. The following observations are worth considering in identifying a business opportunity in a growth-oriented market:
The construction industry was positioned for growth in 2018, with the addition of 30,000 jobs in December 2017, increasing the industry by a total of 210,000, or 35 percent, over 2016. (CNBC)
The senior care industry is growing to accommodate a population in which one in five individuals will be over age 65 by 2030, when older Americans will outnumber children for the first time in U.S. history. (U.S. Census Bureau)
"Green" alternatives related to food, energy, cosmetics, health and travel are expected to support an emerging $3 trillion green market of “goods, services, and technologies which address the challenges created by increased awareness of global climate change,” according to Simpson & Partners industry analysts.
Growth in banking and financial opportunities are likely as the U.S. government reduces some of the costly regulations implemented after the market crash in 2008. (Yahoo! Finance)
Computer and technical sales and support are relevant to a majority of the U.S. population, since 95 percent of Americans own a cell phone, 80 percent use a laptop or desktop computer, 50 percent use a tablet and 20 percent use e-readers. (Pew Research Center)
Child-related goods and services are considered "recession proof" since parents often view spending on children as an important financial commitment and are willing to cut back on other expenditures first in difficult economic circumstances. (Stanford Center on Poverty and Inequality)
Business opportunities in all industries can expect to have more cash after expenses due, in part, to federal tax cuts implemented in 2018. With these changes increasing the bottom line, many owners are reinvesting their capital back into their businesses to facilitate growth, according to a report by USA Today. As the owner of a business opportunity, you'll be positioned to expand in any direction you choose. You'll be free to reinvest profits toward geographical growth, additional staff or expanding your offerings, as you see fit.
You can find a profitable business opportunity in virtually any industry in a format that fits your professional goals, preferences and financial resources. Many business opportunities can be run as home-based businesses with low initial and ongoing operational expenses. In some cases, business opportunities may resemble franchises. However, it's important to remember all franchises are business opportunities, but not all business opportunities are structured as franchises.
Business opportunities are differentiated from franchises in that they allow owners the freedom to operate their businesses without financial obligations or operational structures that align with a parent company. In addition, buying a business opportunity does not include the right to use the trademark associated with the commodities; that's a benefit limited to franchise ownership.
Some of the most common types of business opportunities include:
Licensees: Licensees who purchase business opportunities such as Commercial Capital Training Group purchase the right to use the seller's trade name and proprietary equipment, processes or products. As a licensee you earn the right to sell existing services or products, along with access to the related education, supplies and machinery necessary to start your business.
Dealership/Distributorship: Dealership business opportunities such as Claim-Tek Medical and Dental Billing allow buyers to purchase their proprietary services or products, without access to use of the trade name. Dealers sell the product or provide the proprietary service to customers as an independent business, without using the brand name in their business title. Distributors operate similarly to dealers, except that distributors typically sell to dealers, not consumers.
Vending: Vending business opportunities such as HealthyYOU Vending allow the buyer to distribute a specific product line through a vending machine. Buyers of vending business opportunities purchase inventory and restock the machines. The owner of the vending machine location may receive a portion of the sales revenue for allowing the machines to be in place.
Rack Jobbing: A rack jobbing business opportunity allows you to market a specific line of products to individual stores by positioning and maintaining product racks or displays in those locations. As the owner of a rack jobbing business, you typically receive payment from the store manager based on the revenue earned, minus the store's total for commission.
Business opportunities typically require lower financial investments than franchises. While an initial fee for a franchise can range from several thousand to several hundred thousands of dollars, some business opportunities can be purchased for less than $1,000. There are several reasons for the cost difference. They include:
Franchises pay for the right to use a franchise trademark in all aspects of their business, including their business name. In contrast, the owner of a business opportunity only purchases the right to distribute or sell a specific product or service within the structure of a self-standing business.
The lower price associated with purchasing a business opportunity correlates with the adage that, "You get what you pay for." The higher price of a franchise allows an owner access to the experience and expertise of a franchise team, while owners of business opportunities typically don't receive professional support after the making the purchase.
Owners of business opportunities purchase an individual product or service, which they must work to establish as reputable. Franchise owners buy into a system that includes the reliability and notoriety of the franchise brand, though they also have the obligation to run their businesses to maintain that standard.
In many cases, the entry fees associated with a business opportunity are so low that you can complete the transaction with personal savings or a credit card. However, if you need capital to establish your business or purchase inventory, you'll have more pressure to prove your credibility with lenders than a franchise owner. You likely will have to produce a solid business plan and make a convincing argument that you can succeed as a free-standing entity.
Additional financial considerations include the fact that owning a business opportunity does not carry the same obligations to pay ongoing royalties or fees as required in franchise ownership. While you may have to purchase the product or service from the company that originated the commodity, you won't have to share your profits. As a result, you'll have more control on how you spend your profits.
A defining characteristic of business opportunities is the fact that owners have limited, and often non-existent, relationships with the originators of their products or services after the purchase transaction. With the purchase of a business opportunity, you typically receive the initial materials and equipment to establish your business with little long-term support. However, if you enjoy freedom in how you operate and manage your business, this relationship could be a significant benefit for you. With this type of business structure, you'll have:
Freedom from obligations to operate within specified geographical limits
Ownership of all profits to be used as you determine appropriate
Opportunities to modify your marketing plan to accommodate the demands of the marketplace or remain competitive
Liberty to work with a wide range of professionals for assistance with specialized services
With the FTC's Business Opportunity Rule, you'll also have the chance to investigate the history and performance of the business you've chosen. Business opportunities that don't qualify under the FTC definition still may be subject to state regulation where applicable. Depending on individual state laws, you may be entitled to receive protection from fraudulent claims in transactions valued lower than the $500 FTC transaction threshold. In addition, some state laws mandate the deposit of the purchase price into an escrow account to protect your investment until you receive the promised commodity.
The very characteristics that define a business opportunity also can present challenges as you begin your business. When compared to franchises, business opportunities offer less ongoing support and guidance. For first-time entrepreneurs, the backing of a franchise can make a significant difference in getting started on the right track. While franchise owners can rely on the expertise of their franchisors, you'll have to generate your own support system as the owner of a business opportunity. This can mean you'll have to take the lead in:
Securing loans or financial backing for your individual business
Negotiating your own discounts in purchasing inventory, products and services
Creating and implementing an effective marketing plan
Standing out in a market that may include other sellers of your commodity
Finding ways to keep current on industry trends and innovations
Encouraging customers to make referrals
Seeking out networking opportunities for mutual support and mentorship
While the FTC Business Opportunity Rule and state regulations are in place to protect buyers of business opportunities, it's important to recognize that the laws may not fully protect you from a risky investment. Though the FTC mandates that sellers of business opportunities must provide buyers with uniform documentation, there is no obligation for sellers to file these documents with the FTC. However, when companies are found to be non-compliant, they may face legal action by the FTC, which may result in penalties and fines.
In addition, since there is no uniform description of a business opportunity used at both the federal and state level, some business opportunities may not qualify for regulation. Since most states have an initial payment threshold that defines a business opportunity, sellers may charge initial fees lower than the threshold to make them exempt from regulatory requirements. However, when operating in states that regulate business opportunities, sellers who fail to comply with state regulations may face penalties in addition to those brought by the FTC. To protect your investment, it's important to ensure that you're dealing with sellers who are in compliance with the appropriate regulations.
Characteristics for Success: Who Should Consider a Business Opportunity?
Since business opportunities are available for a wide range of proven products and services, you're sure to find an investment that aligns with your personal interests and professional goals. With the flexibility to structure your business opportunity as you see fit, you'll have the freedom to explore innovative ways to attract customers and maintain profits. However, it also will be up to you to determine the best way to balance your creativity with practical business sense. You'll be positioned to make the most of your role as the owner of a business opportunity if:
You have training or experience related to the products or services your business opportunity offers. Understanding the operational aspects of your particular commodity will help you determine its marketability as well as identify its vulnerabilities.
You enjoy the freedom of running your business autonomously, without the oversight or structure typical in a franchise relationship. As the owner of a business opportunity, you won't have to work within the confines of a franchisor's guidelines, geographic boundaries or financial obligations.
You have experience or an education in business, sales or marketing. No matter what type of business opportunity you pursue, having sound business knowledge will be helpful in gauging the success of your efforts and identifying and correcting issues that interfere with the growth of your business opportunity.
You can be resourceful in operating a business. Without a franchise team to support you, you'll be on your own to find the professional support you may need in areas related to business administration and marketing.
You can prioritize a good business reputation. It will be up to you to establish and maintain a reputation that will attract customers, encourage referrals and facilitate repeat business based on the performance of your individual company.
