Running A Business

What Is a Turnkey Business?

Aug 03, 2021 • 5 min read
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      If you want to run your own business, you have basically 2 options: start your own or take over an existing company. Operating an existing small business, either through purchase, franchising, or inheritance, can take the pain out of many of the challenges new businesses face, like building a customer base or having data on seasonal sales patterns.

      Of course, the business you buy may not be running at an optimal level. Before buying a business, you should understand how to scrutinize existing businesses and how to strategize and leverage the strong elements of a business toward more growth.

      In researching how to buy businesses, you’ve probably come across the concept of a “turnkey business.” This refers to a type of business for sale that’s ready for a new owner right away. Read more to learn what’s involved with turnkey businesses, why you might want to buy one, and what you should look for when comparing your options.

      Understanding Turnkey Businesses

      A turnkey business is an existing business for sale that’s immediately ready for a new owner to operate after buying it. As the name suggests, all the new owner must do is turn the key to unlock the door, and the business will be opened under the new owner’s management.

      To be considered a turnkey business, a company must be fully functional and operating at full capacity. This doesn’t necessarily mean the business is profitable, but it can’t be majorly hindered by problems like broken equipment or missing infrastructure.

      Of course, not every turnkey business exists in a physical space like an office or strip mall, but all are ready to continue operations upon purchase. Examples could include a restaurant under new management or a laundromat looking for a new owner. In some cases, the new owner might not change anything—one day, the business was making money for its previous owner, and today it’s turning a profit for you.

      In many cases, though, there’s a reason that a business is put up for sale. Sales could be flagging, the seller might not want to run a business anymore, or the seller might need cash. Additionally, you might sense that there are ways you could expand the business better than the previous owner.

      What Are the Benefits of a Turnkey Business?

      The most obvious benefit of a turnkey business is hinted at in the concept—the business already exists. Starting a business from scratch involves an immense amount of time, money, and energy. With a turnkey business, you’re paying for the fact that a good amount of the legwork has already been done. You might want to make changes, but regardless, you aren’t starting from a blank slate.

      Alongside this, another advantage of a turnkey business is that the company’s proof of concept usually works. There could be issues with profitability, management, and sales, but you typically aren’t reinventing the wheel when you buy a turnkey business—most turnkey businesses are either running well in the moment or in the very recent past, or else you might have a plan about how you can make the company profitable.

      A disadvantage to turnkey businesses, especially franchise situations, is that the business might already be locked into contracts and obligations that you aren’t interested in maintaining. However, if you buy the business, you’ll then be a party to these pre-existing agreements.

      How Do You Find a Turnkey Business?

      There are many ways to come across turnkey businesses for sale. One of the most popular methods is to approach the owner of a business that you’re interested in and make an offer. It’s also advised that you hire a business valuation expert to make sure the price is fair for all parties.

      Purchasing a franchise location is another common way to buy turnkey businesses, although it’s also one that comes with some major restrictions imposed by a corporate entity—which is both an advantage and a disadvantage. Franchises are known among the small business crowd for their lower failure rate compared to small businesses overall.

      You might also consider multi-level marketing (MLM) businesses, where you sign some agreements and pay for inventory—a type of turnkey business—but these types of companies remain controversial and have a shaky rate of success.

      Like with all other forms of shopping, a very popular way to find turnkey businesses is to browse online. A quick Google search will pull up several platforms with businesses for sale in your city, state, or region. In this situation, all the due diligence is on you to make sure the purchase is worth the investment.

      “Look at the existing infrastructure and make sure you understand everything that comes along with the purchase,” the Small Business Administration recommends. “Don’t be afraid to ask questions about contracts, leases, existing cash flow, and inventory. The more you know, the better equipped you’ll be to make a sound decision.”

      How Do You Buy a Turnkey Business?

      Turnkey businesses are usually expensive because they’re already mature. First, you must find a turnkey business that you’re interested in, believe would turn into an investment, and could manage well. You should consider what kind of business you would like to operate and then go about seeing if one is for sale.

      When looking for a turnkey business, you should consider 3 key aspects: customer fulfillment, marketing, and sales ability. You should measure how well the company serves its customers so they’ll return with future business. Pay attention to how the company markets itself and how well its brand penetrates the marketplace. Finally, you should look at the sales ability of the company—how does it leverage its marketing toward actual sales?

      Once you find a seller, you should hire a financial expert to do an appraisal so you get an accurate price for the company and its various assets, talent, customer networks, and other valuable elements. To make the sale, you will probably have to explore your funding options unless you have all the cash on hand. Online lending platforms like Lendio make finding loan options easy, so you can take your business to the next level. 

      About the author
      Barry Eitel

      Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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