What is a '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 the 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.
BREAKING DOWN 'Turnkey Business'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.
Turnkey Business 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 with 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.