Have you ever wondered how buying a turnkey business works?
A turnkey business is one that you buy and hit the ground running right away. You’ll have everything you need from the get-go, except for maybe customers. These businesses take out a lot of the guesswork so you can start making money faster.
We’ll help you understand turnkey businesses, some of the best types, and how to buy them.
What is a turnkey business?
A turnkey business is ready to operate immediately after purchase. The term “turnkey” comes from when all businesses had physical locations and the buyer could unlock the door and start making money.
Turnkey businesses operate with a proven business model and already have the products and services to sell. This skips many of the cash flow challenges of the startup phase when you start a business from scratch. The buyer benefits from existing revenue streams and well-established relationships.
Next, we’ll talk about some of the best turnkey business opportunities.
Best Turnkey Businesses
When you’re looking to buy a turnkey business, there are numerous established business models, including:
- Turnkey online businesses
- Turnkey restaurant opportunities
- Private-label business credit
- Turnkey construction
- Turnkey franchises opportunities
- Turnkey real estate businesses
Turnkey Online Businesses
A turnkey online business will be comprised of the following:
- Website
- Inventory
- Marketing materials
- Apps and integrations
- Standard operating procedures (SOPs)
Some common online businesses for sale include turnkey dropshipping stores, turnkey eCommerce stores, and Amazon FBA selling accounts. You can find sellers that consistently build these kinds of stores, grow the revenue to $3K per month, and then sell it for up to $150K.
Turnkey Restaurants
Turnkey business opportunities in the restaurant industry allow you to save time because you don’t have to invest in the build-out of the restaurant or develop a menu.
That doesn’t mean the established customer base will be as big as you want. Most proven business models sell for reasons like retirement or if the business model isn’t working in that location. One reason is good, while the other could mean you’re buying a money pit.
Private-Label Business Credit
A turnkey business opportunity that focuses on private-label business credit is similar to an affiliate program, but instead of earning a commission for each customer, you’re paying a monthly fee to earn the commission.
These businesses pay to brand another company’s products as their own. The products, in this case, are business financing and credit-building services.
Turnkey Construction Projects
Construction businesses often offer turnkey projects.
Turnkey projects are contracts where the future owner makes a builder responsible for designing and constructing a house, warehouse, or other structure. All the builder is given are the budget, timeline, and needs. Then the turnkey project manager carries out:
- Engineering
- Building
- Installation of equipment
- Handoff of the building
As a business owner, these types of turnkey business opportunities may be high risk because the existing business may not have been able to complete the project. You may be able to fulfill the expectations if you can negotiate a favorable price for the established business assets.
Turnkey Franchises
A turnkey franchise is a franchise that provides everything you need to run the business. Many restaurant franchises are turnkey because all the suppliers, systems, and other necessary items to run the business are put in place for you. All you have to do is hire employees and manage the franchise.
What does turnkey mean in real estate?
Real estate investments can be turnkey if they do not require renovations for the new owner to start making money. Some opportunities in real estate that are turnkey businesses include:
- Property management company: Given you don’t own the buildings you are managing, you won’t have to repair buildings except if your clients’ properties need repairs.
- Turnkey properties: Apartment complexes with tenants, homes that have been remodeled, and other properties that do not need current repairs are turnkey businesses.
How to Buy a Turnkey Business
The process of buying a turnkey business varies depending on the business model they are using. A financial expert can provide you with the best advice before you purchase a turnkey business.
In general, buying turnkey businesses requires you to:
- Find turnkey business opportunities.
- Research the business’s financial scenario.
- Negotiate the purchase price.
- Submit a letter of intent.
- Perform due diligence.
- Fund the purchase of the existing business model.
- Start turnkey operations.
Let’s start by discussing how to find turnkey businesses for sale.
Find Turnkey Business Opportunities
You can find turnkey businesses for sale by searching terms like:
- Turnkey (or turn key) business for sale
- Business opportunities for sale
- Turnkey (or turn key) online business for sale
- Turnkey (or turn key) business for sale near me
You’ll want to find the right turnkey business by asking questions like:
- Is it a profitable business?
- What is the initial investment?
- Does the company have brand recognition?
- Is it an independent business or a franchise model?
- How big is the pre-existing customer base?
Check out our blog about questions to ask when buying an existing business or how to buy a franchise.
Research the Business’s Financial Scenario
You want to verify that the turnkey business is actually a successful business with a proven track record. Given a turnkey business can be either an independent business, a franchise, or a white-label offering, let’s discuss each separately.
Existing Business Financials
You’ll have to request the information directly from the business owner. This may pose difficulties because the financial records might not be in good order. They might also try to hide financials that would hurt valuation.
Franchise Business Financials
Franchise opportunities have more disclosure requirements. Franchise owners are required to disclose their financials in Item 19 of the Franchise Disclosure Document.
These businesses will have ongoing franchise fees you’ll need to understand. There are likely additional requirements you’ll need to meet to become a franchisee.
These turnkey businesses may not have been profitable for the previous owner, so establish why they are trying to exit an established brand with proven success.
White-Label Business Financials
Most turnkey businesses that offer white-label marketing will be ones with lots of direct sales. As a new business owner, look at the costs to begin operations, the ongoing costs and support, as well as the products you’ll be selling.
Many online turnkey businesses are in industries like software or marketing.
Next, let’s look at how to negotiate how much you’ll pay for the turnkey business.
Negotiate the Purchase Price
Turnkey businesses can be valued in many ways. Learn some of the different ways to value a business.
Independent businesses will provide you with the most negotiating power. Meanwhile, turnkey franchises might allow the current owner to negotiate the price, but they require approval. Many white-label providers will not negotiate with their customer base because the entire process is automated.
Submit a Letter of Intent
Next, you’ll want to submit a letter of intent for the turnkey operation. Your letter of intent should include:
- The Buyer: This is the person or entity buying the turnkey business.
- The Seller: This is the person or entity selling the turnkey business.
- The Business: Make sure to use the legal business name.
- Purchase Price: This is the price you will pay for the business
- Real Estate: This section will document the location, legal description, and purchase price.
- Financing Clause: This is to protect the deal if the buyer is unable to fund the purchase.
- Binding Effect: The laws binding the agreement go in this section.
- Bank Accounts: This section outlines how bank accounts should be handled when the turnkey operation is turned over.
- Formal Agreement Disclaimer: Include a clause that this is not a formal purchase agreement.
- Seller’s Conduct: This is a clause to prevent the turnkey business’s built-in customer base from being damaged until the day-to-day operations are transferred.
- Closing: These terms detail how the closing will be handled.
- Closing Costs: This details how the terms of purchasing the turnkey business work.
- Termination: This specifies when the offer expires.
- Access to Information: Include a clause requiring access to any and all information about the turnkey business.
- Return of Materials: Terms where the buyer does not keep the business’s data if the purchase isn’t completed.
- Conditions: This is a list of all conditions that should be met for the turnkey company to exchange hands. This includes the necessary equipment, marketing campaigns, ongoing support, ongoing fees, and any other requirements to maintain the proven model.
- Confidentiality: Include terms dictating what you can and cannot disclose.
- Good Faith Negotiations: This clause dictates that both parties should act in the best interest of completing the deal.
- Exclusive Opportunity: This clause prevents the current owners from trying to sell the turnkey business to other people while the agreement is in effect.
- Standstill Agreement: The current owner will not attempt to sell or change any portion of the turnkey business.
- Currency: Explain what currency the business will be bought with. Most will be USD, but there may be a chance to purchase with stock, crypto, or other forms of exchange.
- Governing Law: Define the state or country that the contract to buy a turnkey business will be governed under.
- Severability: Include a clause preventing the whole contract from expiring due to an unenforceable clause.
- Counterparts and Electronic Means: This is a clause to allow electronic signature of the document.
- Signature Lines: Of course, you need places for the buyer and seller to sign and date the transfer of ownership for the turnkey business.
You’ll want to have an experienced lawyer provide support for the creation of the letter of intent.
Perform Due Diligence
Due diligence is the process of establishing whether the turnkey business has everything you need to be a reasonable investment. When validating that the turnkey business is an acceptable investment, you’ll need to get all documents including:
1. Legal documents
2. Financial information
3. Physical assets
4. Real estate
5. Intellectual property
6. Employee documentation
7. Licenses and permits
8. Environmental issues
9. Taxes
10. Supplier contracts
11. Products and services
12. Customer information
13. Litigation
14. Insurance policies
15. Professionals the company works with
16. All publications the company owns
Check out Score’s due diligence checklist before becoming a new owner of any turnkey business.
Fund the Purchase of the Existing Business Model
You’ve established you want a new business interest in a company, but turnkey businesses have to be paid for. Luckily, there are a variety of ways to get financing.
You can become your own boss by:
- Getting business loans: You can use equipment, cash flow, and inventory to help fund purchasing the business.
- Borrowing from family: Friends and family can help you fund your business purchase.
- Seller financing: Owner financing is when you buy turnkey businesses and pay the previous owner as you go. Check out our blog about how to buy businesses without money to learn more.
Start Turnkey Operations
Once they’ve handed the keys over to the turnkey business, it’s time to take over business operations. You might want to look at how other businesses operate to grow your business.
What turnkey business do you like?
At this point, you should understand the meaning of “turnkey business,” have some ideas for a turnkey business online and in the real world, and know how to buy a turnkey business.
What turnkey businesses do you like?
