How to Research a Business Opportunity
At the website ewww.ntrepreneur.com they have a Business Opportunities: How to Investigate? , which is a type of guide to due diligence. How good is it? Since the magazine sells many franchise and business opportunities ads, can we count on it to be objective? Suprisingly, it is pretty decent, except for one lame remark about the BBB. Here is their 15 point checklist:
1. Make an honest evaluation of yourself and your abilities. If you've been behind a desk for many years, will you be happy calling on businesspeople and selling them an intangible service? If you've been a field salesperson for years, will you be satisfied selling snack foods behind a counter?
2. You must run your business enthusiastically. Will you be happy introducing a new product or an unusual service that the public knows nothing about? Can you generate excitement for an item not nationally advertised?
3. You must have complete knowledge of the product or service with which you are involved. If the parent company gives you little or no training in technical or management know-how, be wary of the business opportunity. If the licensor-seller has organized all the operating knowledge into a standard operating manual, look with favor upon this business opportunity.
4. Make a market evaluation of the product or service to be offered. Is the time right to introduce it to the public? Is there a need for this type of item, and what is its potential in relation to competition?
5. Find out how many buyers have been in the business successfully for a respectable period of time. A legitimate business opportunity will even provide you with phone numbers of other buyers, so you can verify that they're generally satisfied with the opportunity and that the seller is capable of fulfilling his or her promises.
6. Check the training and experience required to run the business properly. Is there a suitable curriculum of training? What is the scope of training? Does your background fit its requirements?
7. What is the company's profit ratio to sales; to time and service requirements; and to the financial leverage requirements? Can you make more in another type of business?
8. Do you have to work more hours to make the same amount you do now? Can you invest the same amount in the business opportunity yet operate a larger operation and get a better return on investment?
9. Check with current operators to see how they're making out. Are they happy with their businesses? What problems do they have, if any, that are common to all units sold?
10. Research company's history. Is it a new firm with little expertise and experience? Is it an older firm whose regular products have satisfied customers for years? Are the business opportunities all offshoots of their regular business?
11. Is there financial strength and strong credit behind the business opportunity? Can the licensor-seller give you an escrow agreement to deliver a building, equipment, leasehold improvements, inventory, etc., as the unit is made ready for your use? Check out the bank references given by the licensor-seller; discuss the company's financial strength with the appropriate managers.
12. Evaluate the policies and plans of the company with the associations and business groups in which the parent company or seller is involved.
13. The Better Business Bureau will give you a report if others have lodged previous complaints against the company.
14. Having an attorney, accountant or business consultant conduct an in-depth study of the company may be an excellent idea.
15. Visit the headquarters of the licensor-seller. Talk to the personnel and the training director. Visit the original prototype of the business being sold. Evaluate other outlets. Expose yourself to the other outlets' products and services to determine the quality dispensed. (my emphasis)
This is decent advice, except for 12, for the purchase of any distributorship.
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