Franchises and Multi-Level Marketing 5

Are there any inexpensive home franchises?

Some franchises can be run from home and, therefore, may have lower start-up costs since you won't be required to build or rent space. But, most of the low-cost home "business opportunities" are not franchises. They are either multilevel marketing or direct selling opportunities, or package deals that promise to give you everything you need to start a business.

What's the difference between a business opportunity and a franchise?

When you buy a franchise, the relationship is ongoing. The franchisor is likely to have some say about the quality of the goods or services you sell and the methods you use to acquire the products or provide the service. They will also collect a royalty or other fee from you on an ongoing basis. In return they will give you guidance and training as well as name recognition.

A business opportunity does not usually come with the control or the support that a franchise does. However, sometimes the company selling the opportunity may act as a service bureau. And sometimes the opportunities are structured in such a way that they appear to be franchises even though they aren't. Some states now require business opportunities to register in the state and to provide disclosure documents to consumers intending to purchase the opportunity

How much does it cost to buy a business opportunity?

Prices vary widely from under $100 to $10,000 or more. And that's just the price to purchase the opportunity. You will have to allow additional money for marketing, office expenses, and other routine costs of doing business.

Is there much risk involved with buying a business opportunity?

Yes, there can be, particularly when the purchase price is significant and you need a storefront as you would for most franchises.

One would-be business owner—we'll call him "Joe"—sold a rental property he owned to raise the money to purchase an automotive parts business opportunity. The business looked like a franchise because it was to be operated from a storefront location and would sell the opportunity company's brand of merchandise. But as Joe discovered after the fact, the company was not a franchise but a seller-assisted marketing plan.

Before Joe had all the up-front money in place to get the business going, the opportunity company found an existing auto parts store and negotiated a price for him to purchase the store. This was a separate transaction from the purchase of the opportunity. Once the store was turned over to Joe, the opportunity company removed all of the inventory in the store and replaced it with their own branded merchandise. "The business failed after about a year of sucking me dry, and I filed legal action to recoup my losses," Joe explains.

To help prove his case, Joe ran an ad in a state-wide automotive periodical asking for information from people with similar experiences. He was inundated with responses and won his case against the company, but not until after the business had forced him into bankruptcy.

Looking back, Joe says he believes the company put unsuspecting consumers in business to fail so the opportunity company could profit by "repossessing more than they supplied." In the agreement, he says, "they lien everything on the premises of the store, not just what they finance you for. That would include thousands of dollars of shelving, displays, cash registers, computers, signage, and many other peripherals of doing business."

Joe advises others who are looking for business opportunities to treat the purchase the way you'd treat the purchase of an automobile. "If it's not what you want exactly, at the right price and the right conditions, be ready to walk away. I didn't do that. I let my mind overlook some obvious shortcomings for what I thought would be a positive result no matter what." He also advises to learn the laws covering franchises and opportunities in your state and to read all disclosure documents carefully. "No one will do it for you. You must do your homework."

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