Just as the name implies, a turnkey business is one that is all ready to go as soon as you buy it. You sign the contract, pay the money, turn the key and it starts running at full capacity. To qualify as a turnkey business, the seller has already done all of the legwork setting up the business and the buyer is able to start operations immediately.
Types of Turnkey Businesses to Look For
There are several different models that qualify as turnkey businesses, including any established business being sold by its owner without any caveats or restrictions. Other types of turnkey opportunities include:
- MLM (Multi-Level Marketing): Once you buy into the program, you're given samples, marketing tools and the company's sales formula, but you will have to find your own customers.
- Commercial Real Estate: When you buy the building, it may already have tenants and, often, established contracts with building management or maintenance companies that you can keep or replace.
- Franchises: Most come with a ready-made framework and a specified location or territory. However, the business model, suppliers and advertising are usually dictated by the head office.
- E-Commerce Websites: The website, supplier contracts and a database of existing customers are sold for one price.
Just as an empty lot wouldn't qualify as a turnkey business, not all websites, MLM or franchise opportunities qualify either.
Turnkey Operations Advantages and Disadvantages
The main advantage of turnkeys is that you're usually buying a proven business model. Provided you have researched the business and its market, the risk of failure is much lower. A second advantage, of course, is that the early lean days of a startup are usually already behind you because that work has already been done.
On the flip side of these advantages, the cost can be a barrier. Not only are you paying for the physical assets, but the goodwill, the time, the sweat and the tears the current owner has already invested. It often takes several years before you make enough in profit to earn back your investment. In that time, there are no guarantees that the market will be as robust as it was when you bought it.
The advantages and disadvantages of turnkeys are generalizations, with plenty of exceptions. MLMs for example, tend to cost very little, while the amount of work required can be exorbitant. Keeping within this generalization, if you have the money to invest and dislike the startup process, a turnkey business is probably a great choice.
How to Buy a Turnkey Business
Just like starting your own business from scratch, you will need to examine a turnkey opportunity very carefully before knowing if it is going to be a good investment or not. First, look at the company itself:
- What are the company's revenue and profits?
- Does it have a sustainable business model?
- Have revenue and profits increased or decreased?
- What is included in the sale price and what is not included?
Secondly, look at the company's primary market, which you can do by buying an industry analysis report. However, you need to look at the local market too. For example, if you're buying a trampoline store, it doesn't really matter what the national trampoline market is, or how well the company's sales have been in the past year, if there's already a trampoline in every yard in town.
Thirdly, you need to determine if you are a good fit for this business. Ask yourself how much time and money it will require and whether or not you are willing to invest that in this business. Ideally, the best turnkey business is one that requires skills that you have in order to make it more profitable. Are there things you can do that the current owner hasn't that will add value to the business?