Turnkey Business

Turnkey Business

A turnkey business is a business that is ready to use, existing in a condition that allows for immediate operation. The term "turnkey" is based on the concept of only needing to turn the key to unlock the doors to begin operations. To be fully considered a turnkey solution, the business must function correctly and at full capacity from the moment when it is initially received.

What is Turnkey Business?

Turnkey Business is a term given to a situation in which the top management of the firm plans and executes all the business strategies and policies that result in profiting of the company and that outside individuals will buy the franchise or the business and start or ‘turn the key’ to begin the operations for the main company. A turnkey business primarily requires initial investment and labor. It already has a proven, successful business model.

Franchises are typically turnkey business, but any existing business that's already up and running successfully or a new business whose doors are ready to be opened could be considered a turnkey business.

Example: Subway's sandwich shops are turnkey businesses. The menu has already been developed, the stores have already been designed, the employees' uniforms have already been chosen, marketing is already in place and consumers are already familiar with the brand. To open a new Subway franchise, an individual only needs to pay startup and operating costs for one store location, a franchise fee and ongoing royalty fees; he or she does not have to worry about the other major aspects of business development.

A turnkey business has one point of authority. He/she takes all the responsibility for its success or failure. So it is a high risk high return position.

A turnkey business is a business that includes everything you need to immediately start running the business, as opposed to having an idea for a product or service and developing a business from scratch.

In a turnkey business a successful business model is already in place and the products or services have been defined and proven so the startup phase is complete. The phrase "turnkey" is meant to imply that little work is required by the buyer other than opening the door to customers.

How Turnkey Businesses Work

A turnkey business is an arrangement where the provider assumes responsibility for all required setup and ultimately provides the business to the new operator only upon completion of the aforementioned requirements. A turnkey business often already has a proven, successful business model and merely requires investment capital and labor.

The term refers to a corporate buyer just having to "turn" a "key" to commence business activity.

A turnkey business is thus a business that is ready to use, existing in a condition that allows for immediate operation. The term "turnkey" is based on the concept of only needing to turn the key to unlock the doors to begin operations. To be fully considered turnkey, the business must function correctly and at full capacity from when it is initially received. The turnkey cost of such a business may involve franchising fees, rent, insurance, inventory, and so on.

• A turnkey business is a for-profit operation that is ready to use as-is the moment it is purchased by a new owner or proprietor.
• The term "turnkey" is based on the concept of only needing to turn the key to unlock the doors to begin operations, or to put the key in the ignition to drive the vehicle.
• Turnkey businesses include franchises, multi-level marketing schemes, and certain real estate investments, among others.

Turnkey Businesses and Franchises

Often used in franchising, a firm's high-level management plans and executes all business strategies to ensure that individuals can buy a franchise or business and start operating immediately. Most franchises are built within a specific pre-existing framework, with predetermined supply lines for the goods required to begin operations. Franchises may not have to participate in advertising decisions, as those may be governed by a larger corporate body.

The advantage of purchasing a franchise is that the business model is generally considered to be proven, resulting in a lower overall failure rate. Some corporate entities ensure that no other franchise is set up within the territory of an existing franchise, limiting internal competition.

The disadvantage of a franchise is that the nature of the operations may be highly restrictive. A franchisee may be subject to contractual obligations, such as items that can or cannot be offered, or where supplies may be purchased.

Direct Sales and Multi-Level Marketing

Direct sales and multi-level marketing (MLM) businesses, such as Mary Kay, can also be seen as turnkey businesses based on how little it takes to have them up and running. Often, a person only needs to sign up for the particular service as a consultant and pay fees for the inventory required to perform the work.

A consultant is not an employee of the company; instead, the consultant functions as an independent entity. Profits are made based on the difference between the supply costs and the price at which the items are ultimately sold.

Other Turnkey Businesses

Aside from franchises, any existing business that's already up and running successfully or a new business whose doors are ready to be opened could be considered a turnkey business. In these cases, if the business has a proven track record, the risk may be lower compared to starting a new business from scratch, and it may also provide more control over business decisions than a franchise model.

However, it may be challenging to get an accurate valuation before the business is purchased, as well as information about why the business is for sale. There are no preset methods for increasing the likelihood of success in cases where the current performance of the business is lacking in some way.

Turnkey Properties

A turnkey property is a fully renovated home or apartment building that an investor can purchase and immediately rent out. Turnkey properties are typically purchased from companies that specialize in the restoration of older properties. Those same firms may also offer property management services to buyers, minimizing the amount of time and effort they have to put into the rental.

This investment approach is especially appealing to individuals who desire exposure to the real estate market but who do not have the time or ability/interest to renovate a home or handle maintenance issues. In most cases, the investor will hire a separate company to manage the property.

Advantages of a Turnkey Business

The greatest point of preference to purchasing a turnkey business is that the plan of action has as of now been demonstrated so the majority of the danger and vulnerability is disposed of. Set up business or establishments have a much lower disappointment rate than free new companies. The purchaser does not have to stress over whether the item or administration will offer or not; he/she can concentrate on maintaining the business. Frequently the offices, gear, and (on account of a free business) the workers are incorporated into the deal, making the takeover process significantly more straightforward.

On account of establishments, for example, Tim Horton's, for instance, everything from the eatery area to the menu is predefined for the purchaser. Consequently the purchaser pays startup charges, establishment expenses, and must buy supplies and hardware from Tim Horton's. The organization gives preparing, national promoting, and help with administration

Disadvantages of a Turnkey Business

Purchasing a set up business or establishment requires a considerable speculation. For an establishment, for example, Tim Horton's, for instance, you must have $1.5 million in total assets and $500,000 in unhampered capital. The establishment charge for a 20-year Establishment Understanding is $50,000. Establishment organizations are ordinarily extremely prohibitive - the proprietor has a great deal less control on how the business is overseen and worked versus an autonomous business. (See If You Purchase an Establishment?) For occurrence, the contractual prerequisite to buy gear and supplies from head office implies you can't acquire these things from less costly sources.

Business people considering purchasing an establishment business ought to dependably do their due determination and make certain they know precisely what a specific turnkey operation incorporates; not all establishment organizations are made equivalent, and to confuse things significantly more, establishment enactment varies from spot to put in the event that it exists by any means. (Why B.C. is the Best Place in Canada to Offer or Purchase an Establishment gives a diagram of establishment law in Canada). Acquiring a current autonomous business likewise requires cautious examination. It is imperative to discover why the business is available to be purchased - the organization may have as of late lost a substantial contract, have an immense expense obligation, or generally be in decay because of rivalry or different elements.

Appropriate business valuation can be troublesome for the purchaser of an autonomous business. A business that is being sold as a turnkey business typically incorporates tangibles, for example, stock and hardware through intangibles, for example, a formerly settled notoriety and goodwill. Unmistakable resources are ordinarily easy to esteem yet intangibles can exceptionally troublesome.

 

Pros and Cons of a Turnkey Business

Pros

• Proven business model
• Franchise company may provide support
• Built-in customer base

Pros 

• Proven business model: As long as you do your due diligence and ensure that a business model has actually proven its success, then most of the risk and uncertainty associated with starting a business is eliminated. The buyer does not need to worry about whether the product or service will sell or not, so they can focus on running the business. The facilities, equipment, and (in the case of independent businesses) perhaps even employees are included in the sale, simplifying the takeover process.
• Franchise company may provide support: Everything from the restaurant location to the menu can be predefined by a franchise for the buyer. The company may also provide employee training, national marketing, and assistance with management.
• Built-in customer base: Purchasing a well-established, existing business has the benefit of a built-in customer base that already appreciates the product and service. This can help improve the failure rate for turnkey businesses compared to independent startups.

Cons

• Expensive
• Franchises can be restrictive
• Difficult valuation process

Cons 

• Expensive: Buying an established business or franchise requires a substantial investment. For a franchise such as Tim Horton's, for example, you must have $1.5 million in net worth and $500,000 in liquid assets.² The franchise fee for a 20-year franchise agreement is $35,000. Even if you're considering an independent turnkey business, not a franchise, it will still likely require a major investment of capital.
• Franchises can be restrictive: Franchise businesses are typically very restrictive. The owner has much less control over how the business is managed and operated compared to an independent business. For instance, the contractual requirement to purchase equipment and supplies from the franchise's head office means you cannot obtain these items from less expensive sources.
• Difficult valuation process: Purchasing an existing independent business also requires careful investigation, and it can be difficult to properly assess its value. It is important to find out why the business is for sale. The company may have recently lost a large contract, has a huge tax liability, or otherwise be in decline. It's also important to consider the value of any inventory, equipment, or employees included in the purchase, along with intangible assets like reputation.