Again, Entrepreneur Magazine with a real look at some of the disadvantages of buying a business opportunity. Fortunately, the business that we're part of doesn't have ANY of these constraints!
Under ideal conditions, business opportunities are a good, low-investment way to get into business with minimum risk and a good chance for success. But nothing in this world is perfect, so here are some problems that can be expected:
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! Look it over thoroughly yourself. You might even hire an outside marketing consultant to evaluate and possibly argue with the parent company's choice. Having a better locations could literally mean millions of dollars in profit over the course of 20 years.
Lack of ongoing support. There is usually no requirement for the business opportunity seller to offer ongoing support of any kind. If the seller decides not to supply information or guidelines that could help you once you're in operation, you may not have much recourse available to you.
Exclusivity clauses. Are you restricted to selling only the manufacturer's merchandise? If this is the case and you deviate for any reason whatsoever, you run the risk of the licensor canceling the agreement. If you do buy from other sources, it will be very hard to hide-most parent companies will require you to open your books for examination at predesignated periods of time. Any irregularities will be spotted at these times. 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. Make sure you receive a disclosure statement. Then carefully evaluate the licensor. Don't let anyone hurry you. Make sure a responsible company backs the business opportunity.
