In the preceding section, we outlined numerous things an entrepreneur should do to ensure that he/she chooses a venture that will be appropriate for him/her personally, and will represent a sound investment. It’s quite important to cover all bases before signing a contract with the seller.
The following are some strategies entrepreneurs should use to protect themselves from making wrong decisions on business opportunity ventures.
Guidelines for choosing a good business Opportunity
First is to make sure the business opportunity of choice complies with all business opportunity statutes. These vary from state to state. Next is to find out if the business opportunity of interest is open to buyers.
When choosing a business opportunity, an entrepreneur should keep in mind that if he buys an opportunity from a company with a sizable number of outlets that’s been in business for at least three years, he’ll pay more for this established concept than he would for a newer one. If he is considering a more recently established business opportunity, he should check out the parent company’s history to evaluate its success and longevity in its particular field of operation.
An entrepreneur could evaluate the ‘right’ business opportunity using the following guidelines.
These guidelines cover situations where the business opportunity is the entrepreneur’s own idea and where it is an idea from a parent company under a franchise/ franchisee arrangement.
1. Making an honest evaluation of one’s self and abilities.
Here, the entrepreneur will assess his areas of interests and make a decision as to what exactly he would want to do with his talents. What drives him to want to go into business is something he will want to examine more keenly and make the first decision.
2. Running the business enthusiastically.
If the entrepreneur is introducing something new into the market that is unknown to the general public, he should muster all his efforts to enthusiastically convince his potential customers of the need for the product or service he is bringing into the market. He should be able to generate excitement for the item through advertisement or other means.
3. Having complete knowledge of the product or service
The entrepreneur should carry out a thorough research into the product or service he wishes to introduce. This will enable him convince his customers and potential investors. If the arrangement is a franchise, he should consider whether the parent company will give him little or no training in technical or management know-how, in which case he should be wary of the business opportunity.
If the licensor-seller has organized all the operating knowledge into a standard operating manual, he should look with favor upon this business opportunity.
4. Making a market evaluation of the product or service to be offered.
The entrepreneur should find out whether the time is right to introduce the product to the public.
He should consider whether there is a need for this type of item, and what is its potential in relation to competition.
5. Finding out how many entrepreneurs have been in the business successfully for a respectable period of time.
A legitimate kind of business opportunity will attract many entrepreneurs who feel they can be successful. The entrepreneur should carry out a research to see how many successful businessmen have made it in that line of business he has decided to undertake and how many have failed for various reasons. If it is a franchise arrangement, the parent company should provide him with phone numbers of other buyers, so that he can verify that they’re generally satisfied with the opportunity and that the seller is capable of fulfilling his or her promises.
6. Checking the training and experience required to run the business properly.
If running a particular line of business requires training, the entrepreneur should consider attending a course that will enable him have the relevant skills required for the business he has chosen. Questions he should ask himself include; is there a suitable curriculum of training? What is the scope of training? Does my background fit its requirements?
7. Financial strength and strong credit behind the business opportunity
Where the entrepreneur is running the business under a parent company, he should find out whether the licensor-seller will provide an escrow agreement to deliver a building, equipment, leasehold improvements, inventory, etc., as the unit is made ready for use. He should check out the bank references given the licensor-seller and discuss the company’s financial strength with the appropriate managers.
8. Visit the headquarters of the licensor-seller.
The entrepreneur should talk to the personnel and the training director of the parent company.
He should visit the original prototype of the business being sold and evaluate other outlets.
He should expose himself to the other outlets’ products and services to determine the quality dispensed.
9. Have legal representation.
Where the entrepreneur is buying a license, he should make sure his lawyer is present. The lawyer will assist him when he is negotiating with the licensor-seller. At the very least, the lawyer should go over the contract to purchase the business opportunity and advise the entrepreneur as to whether or not he should sign it in its present condition. He or she should explain what each aspect of the contract means so that the entrepreneur understands what he is signing.
10. Return on investment.
The entrepreneur should find out what the company’s profit ratio to sales is. He should relate this to time and service requirements and to the financial leverage requirements. In other words he should consider whether he can make more in another type of business. He should find out whether he can invest the same amount in another business opportunity yet operate a larger operation and get a better return on investment.
11. Research the parent company’s history.
If the entrepreneur is taking on a franchise, he should find out whether the parent company is a new firm with little expertise and experience or whether it is an older firm whose regular products have satisfied customers for years.