Turnkey businesses are becoming increasingly popular, and for a good reason. There are numerous advantages to buying a pre-existing firm, but maintaining a successful business can soon become stressful. If you’re thinking about buying a small business but aren’t sure if you have the time to dedicate to a large enterprise, a turnkey business model might be the ideal fit for you.
However, while there are numerous advantages to purchasing an existing business, there are also risks involved. In this blog post, we’ll look at the benefits and drawbacks of buying an existing small business so you can make an informed decision.
What Is a Turnkey Business?
A turnkey business is one that already exists and includes everything needed to get started. They are purchased outright, with the buyer’s sole responsibility being to manage the business. A truly turnkey business is a well-established company with a track record of success. It has a business plan, high demand, steady cash flow, an established client base, stable staff and contractors, good ties with bankers and vendors, and, maybe most crucially, growth potential.
Such companies can be located locally through classified ads, as well as nationally and globally through brokers and websites. The type of business might range from a local one run from a regular office to one that is location-independent and run from home. On the websites like Flippa and Empire Flippers, you can even find turnkey chances in the form of completely automated websites. These websites make revenue in a variety of ways (for example, by providing content, services, or e-commerce) and can be maintained by a new owner from the first day they take over.
What are the Pros of a Turnkey Business?
- Proven System
When you purchase a turnkey system, the franchise owner has already made all of the mistakes that are common when establishing a new firm. The turnkey system is essentially a how-to manual for running a successful business in the chosen field. There is no need for you to try to find out anything on your own. All you have to do is pay attention to the instruction you receive and learn to do things exactly the way the original owner does them, and success is almost guaranteed.
- Reduced Startup Time & Research Advantages
Not only are the products or services of an existing business already market-tested, but you will also be able to begin selling quickly. For example, if you’re starting a retail business from scratch, you’ll need to invest in the following: obtain inventory, locate suppliers, employ people; before you open your doors to customers, find a place. In comparison, if you buy an existing business, many of the following duties will already be in place: employees will have already received training; there will be pre-existing supplier ties; procedures and protocols will be established; there will be a substantial information foundation from which to draw.
When you buy a business, the prior owner will have done a lot of the legwork for you. To name a few instances, you may need to hire more employees, redesign the facility (or hunt for new real estate), and improve equipment. Nonetheless, many chores will be handled for you as the business buyer, allowing you to concentrate on improving parts of the organisation and making it your own.
- Support & Guidance
When selling an existing business, most owners provide the new owner with unrestricted support. Depending on your requirements, the assistance can take several forms. It might be in technology, marketing, training, operational optimisation, or anything else you require assistance with.
Turnkey businesses are the best because of the availability of help. It is the distinguishing feature that distinguishes it from other firms. You have a higher chance of moving your business in the proper direction and increasing your chances of success if you collaborate with a supportive business franchisor.
- Established Brand & Customer Base
A turnkey firm provides the stability of a trusted name, whereas a new business must start from the beginning, envisioning a name and logo and then taking steps to have it recognised and linked with the correct principles. A turnkey business has already done the job of establishing brand recognition, allowing new entrepreneurs to skip this phase as well.
The most difficult aspect of running a business is convincing customers to switch from a competitor’s product to yours. You must demonstrate that your brand is the greatest in the industry, which implies offering substantial discounts. Turnkey firms, as opposed to independent startups, already have a well-established and dedicated consumer base. As a result, your product or service will have a ready market, which will help your turnkey business succeed.
- Easier Access to Business Financing
It is frequently easier to obtain additional working capital, particularly traditional financing, when buying an existing business. If you need a loan to buy a business, getting approved for a startup business loan amount is much harder.
Furthermore, because the lender can analyse the current business’s finances, the business acquisition loan application procedure may be less onerous. A working capital lender, for example, will be able to assess your company’s viability based on its revenues, profits, and other financial data. This reduces the lender’s risk, and if the existing firm is in good shape, it increases the likelihood that they will provide you with a small business loan.
What are the Cons of a Turnkey Business?
While the benefits described above are all compelling reasons to purchase a turnkey business, the disadvantages highlighted below should not be overlooked.
- You Receive What You Paid For
Few business owners will sell a thriving company for a low buying price. If a company is doing well, the former owners are likely to seek a high price, which is understandable. As a result, you should carefully weigh the launch costs against the cost of purchasing an existing business. In the long run, developing your own business and brand may save you money, but it will ultimately depend on the quality of the existing firm.
On the other side, if you buy a cheap firm, there’s a chance that the brand has been tarnished or that the market has rejected the product or service. It might be difficult to resurrect a terrible brand or a struggling firm. In such circ*mstances, you should consider whether the firm is worth acquiring even at a low cost.
- Potential Need for Significant Operational Change
You may buy a business with the expectation that it will be essentially turnkey, but you may end up dealing with a variety of issues. It will be difficult to assess how well the business is running until you get behind the wheel yourself. Some red flags to look out for include: staffing issues, such as disgruntled employees or frequent turnover; equipment that is out of date or prone to malfunction; suppliers who are untrustworthy; existing debt or cash-flow problems.
Unfortunately, attempting to implement modifications may result in the creation of additional difficulties. Employees, for example, may object to policy changes and even quit. To avoid these concerns, we recommend learning as much as you can about the existing firm so that you don’t come to regret your decision.
- You Might Get Scammed
In addition to the obvious problems, you may be duped by unethical sellers. It’s possible that the former owner falsified financial data, glossed over necessary repairs, or failed to provide a clear picture of the entire operations.
You may have legal remedies in this case, but legal bills can soon mount up. To avoid being duped, go over all legal paperwork with your lawyer and do extensive research before purchasing an existing business.
- Challenges Making ‘Your’ Business
When you purchase an existing business, you are assuming someone else’s vision. Most likely, you’ll have to put in some effort to make it your own and make changes that reflect your objectives. For example, you might want to make the following modifications: launch new products/services; invest in branding changes to freshen up the décor; and restructure the operational organisation.
Unfortunately, these modifications can be costly in terms of both time and money. Because you did not start the business, it may never feel truly yours in some cases. If you’re concerned about this, you might be better off waiting until you’re able to start your own business.
Final Thoughts
Every situation has two sides to it. While there are many compelling reasons to purchase a turnkey business, there are a few reasons to pause and reflect before committing to a franchise or turnkey operation. To name a few factors, whether you should do so will be highly influenced by your situation, company finance possibilities, and the type of business.
We recommend that you take the time to explore all of your alternatives before making a final decision so that your business venture is a lucrative one!
February 1, 2022 Business, Finance, Marketing PlaniumPro Team
