A business opportunity is the generic term referred to by sales intermediaries and sellers to describe all offerings available on the market for those who want to purchase and own their own small business.
But there is an important distinction between a true business opportunity and a going business that is on the market for sale. It's important for a buyer to know that difference, and to be familiar with the five characteristics that make a business opportunity different from an existing retail, service, food related or other kind of enterprise that is for sale.
Those five characteristics are:
1. The most obvious difference is that an ongoing business which an owner wants to sell will come with existing customers, employees, a known name and, in most cases, a distinct location. A business opportunity, on the other hand, is an idea for providing products or services, and some of the methods and resources needed to implement the idea. Ordinarily the business opportunity is meant to be operated from the buyer's home or a facility that the buyer is responsible to obtain.
Among business opportunities often promoted for sale are services businesses involved in, for example, placing and servicing vending machines, providing billing and related services for professional people, assembling finished products from parts provided, and selling products in a direct marketing system.
2. While an ongoing business has a history behind its operations--producing revenues and earnings for the owner, and establishing and building relationships with customers and suppliers, there is no track record for a business opportunity, because it will be a new business. This distinction is particularly important to a buyer who wants to know if the sales, earnings and other projections made by the seller are likely to be realized once the business is started.
3. In the opinion of many buyers, because there is no proof that a business opportunity will be successful in the territory or region where it is being offered, it seems a riskier investment than a business with a known operating track record.
4. A business opportunity typically can be purchased for less money than will be required when buying an existing business. The buyer of a business opportunity may need to purchase inventory, equipment, fixtures or other assets in order to operate. There also may be a cost for "soft" assets, such as training and trade name. By contrast, the business that has been in its location serving customers for awhile will almost always cost more because in addition to the hard assets, a buyer usually will be required to purchase goodwill--also called "going business value," and frequently, a covenant not to compete.
5. The Federal Government has little reason to get involved in the way an existing business is offered and sold. The exception might be a business that requires Federal licensing or in the event Federal laws are being broken in the way the business is operated or offered for sale. The FTC, however, has established rules for the way a business opportunity can be sold. Sellers must provide interested buyers with a disclosure statement seven days before that buyer can sign a contract or hand any money over to the seller of the opportunity. Included in the disclosure are names and contact information for other investors who have purchased the opportunity being offered.
This means that the due diligence process takes place before there is any agreement for purchase of a business opportunity. The reverse is true when an individual signs a contract to buy an ongoing business. That's because the buyer and seller have agreed on price and terms, but with a contingency that the buyer has the right to analyze and learn more about the business--to make sure the company operates and performs as represented--before the contingency is removed and the transaction progresses toward a close.
The involvement of the government resulted from complaints of business opportunities sold on the basis of information that was not factual, or without the buyer having the opportunity to verify the information before being committed to a deal. Buyers are cautioned, when considering the purchase of a business opportunity, to call on other buyers of that opportunity and learn their experience. And conduct other common sense methods of investigation before singing on the dotted line.
About: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established in 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) he works with business buyers, owners/sellers, intermediaries, agents, investors, and advisors). Phone him at 866-270-6278 or 888-212-4747 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
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