Turnkey business

From CEOpedia | Management online

Turnkey business is an actively operating business that provider wants to sell or lease. Usually turnkey business operates on the market for at least several years, has loyal customers and good standing. The owner, however, wants to sell or lease it due to some reasons unrelated to the business.

Turnkey business can be very good investment for people who want to run own business, but don't want to take time to build it from scratch. It is important to check whether customers are loyal to business or the owner.

Development of turnkey business using franchise

Turnkey business is also a good opportunity to create franchise. Good business can be replicated in other places. Business owner can earn more thanks to franchise license payments, and franchise owners take lower risk thanks to well established trademark and known business processes.

Purchasing existing entreprise

Turnkey business could be bought on professional trade platforms like bizbuysell.com, which allows buy and sale established companies exactly like any other product. Buyer have opportunity to buy ready small business with all necessary equipment, licenses and customers base (S.Ward, 2018). Buying existing enterprise on marketplace is fast way to own company, but in long term, require experience in operating a business.

How to become the owner of turnkey business

According to the Russell Robb, buying company is difficult process for non-institutional buyer. He mentioned following ways to acquisition a business:

  • Directly asking a company, which seems to be interested for us
  • Use professional broker services, which introducing offers and helping find the best business for us. Usually, price of business bought in that way is under 1 million dollars.
  • Keeping contact with persons which are working in close environment of company, for example accountants or lawyers, and waiting for information about any acquisitions opportunities.
  • Requesting representants working in investment bank and having access to sell offers of larger companies.
  • Use platform which searching businesses for sale according with personal criteria, but charges few thousands dollar per month.
  • Read professional literature, what allow to understand whole acquisition process and help find the most tailored business for buyer expectations (R. Robb, 2008, p. 7).

Advantages of turnkey business

In Susan Ward opinion, one of the main advantages purchasing a turnkey business is reduced risk and misguidance, through adaptation ready business model (S.Ward, 2018). Companies founded personally, comparing to existing ones or franchises, are more vulnerable on failure.

According to Colin Barrow, other important benefits of turnkey business are:

  • Lowered risk of expensive mistakes.
  • Prearranged agreements with clients, suppliers, financial and government departments.
  • Ability to low involvement at beginning of entrepreneurship.
  • Buying existing company instead of setting up in business personally means eliminating one potential competitor from the market (C.Barrow, 2011, p. 21).

Disadvantages of turnkey business

Primarily, buying existing business or franchise demands involving considerable capital. May pass years before return on investment will appear. Another important disadvantage of turnkey business might be low level of actual control under company. Acquired agreements, for example with suppliers, may be less favorable than with other potential providers (S.Ward, 2018). Expect mentioned bellow, Colin Barrow listed following difficulties:

  • Determining value of company could be hard to perform.
  • Searching suitable turnkey business offer and negotiating conditions of purchase demands time.
  • Financial and law advisors help may be expensive but also necessary to ensure that acquisition process is lawfully and free from hidden expenses and responsibilities to tax office or employees (C.Barrow, 2011, p. 22).

Examples of Turnkey business

  • Restaurant: A restaurant is a classic example of a turnkey business. This type of business is typically already established and can be easily taken over by a new owner. It often includes the necessary equipment and staff, as well as a client base and a well-known reputation in the area.
  • Service Business: A service business is a business that provides services to its customers, such as landscaping or home repair. These businesses usually have a loyal customer base and have been operating for some time. The new owner would need to take over the existing staff and equipment and may require additional training.
  • Retail Store: A retail store is another example of a turnkey business. This type of business usually has a loyal customer base, existing inventory, and existing staff. The new owner would need to take over the existing inventory, staff, and customers.
  • Online Store: An online store is a great example of a turnkey business. This type of business often includes a website, existing inventory, and a customer base. The new owner would need to take over the website, existing inventory, and customers.

Other approaches related to Turnkey business

Turnkey business is just one of the approaches to business ownership. Other approaches include:

  • Franchising - The franchisor provides the franchisee with a detailed business plan, brand recognition, training, and support.
  • Joint Ventures - This approach is usually used when two or more entities partner together to create a new venture.
  • Licensing - This approach involves an agreement in which the licensee can use a product or service from the licensor in exchange for a fee.
  • Greenfield Ventures - This approach involves starting a business from scratch, without any help from existing companies.
  • Acquisition - This approach involves the purchase of an existing business.

In conclusion, turnkey business is just one of the many approaches to business ownership. Other approaches include franchising, joint ventures, licensing, greenfield ventures, and acquisition. Each approach has its own advantages and disadvantages, so it is important to consider all options before making a decision.

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Author: Artur Kopera