Conclusion: A Final Invitation to the Turnkey Sector

The turnkey business sector is one that is full of possibility and opportunity for the entrepreneur who is willing to put in the time and effort to make his or her new business a success.

A turnkey business is one in which the prospective owner simply has to “turn the key” to start a successful venture. This book has outlined a basic overview of what the turnkey business sector encompasses, how to go about researching a possible turnkey business venture, how to avoid the common hazards faced by first-time business buyers, and finally, how to make a wise purchase of a turnkey business.

The turnkey industry is one of the most rewarding opportunities for business-minded individuals. With enough research, time, and energy, anyone can be a successful turnkey business entrepreneur.

Are you ready to turn the key to success?

Read the Manual

Most franchises have a manual that is distributed by the parent company. Reading this book from cover to cover can be more eye-opening than any other research. By looking at what the company has codified and put down on paper, corporate organization, goals, expectations, and policies toward employees can be ascertained.

Manuals are sometimes available for loan upon request from the parent company. Barring this, it may be easiest to borrow a manual from a current franchise owner.

Building on the Knowledge of Former Owners

Current franchise owners can be a wonderful resource for invaluable information and experienced opinions. Because a prospective franchise owner will also be a part of a main business structure and therefore required to uphold the policies and regulations of the parent company, talking to current franchise owners can shed a lot of light onto the inner workings of the company. Asking questions about what the previous owner found helpful, frustrating, or surprising might save a lot of surprise and anxiety in years to come.

Many franchise owners have found out too late that corporate policies are too restrictive or not suited to their individual tastes and needs. Talking to current owners and workers will give a clearer picture of how the parent corporation operates and what it expects of franchise owners. Building on the tried and tested knowledge of former owners will provide the background needed to ensure that a particular company is well-matched to the needs of the potential buyer.

Location, Location, Location

For those who are purchasing a franchise that has already been established, the problem of selecting an appropriate location is less obvious than for those building from the ground up. However, it is still incredibly important to consider where a future business enterprise will be located.

When considering location, a business owner must think about traffic flow, parking, neighboring buildings, and from where customers will come. Companies that are tucked away behind office buildings may have regular customers from those same office buildings, but they are also less likely to get regular foot traffic than companies with visible and convenient locations. Certain locations may have what seems like a fantastic and visible location, but with little or no parking available, no business will be able to flourish. One additional point to consider is how the area will change over the course of the years. What may be an ideal location this year may be next to a deserted shopping mall the next.

Buildings, highways and local roads change constantly, so checking in with local government planning offices is always recommended when looking at a prospective company location. When buying a turnkey business, if the location if the company is poor, it may be a bad idea to go ahead with the purchase.

Choosing a Well-Matched Business

Many people have the desire to own and run their own business because they crave independence and self-determination. What is more, one of the most common reasons to invest in an owner-managed business is the increased profit that comes with being self-employed.

While hefty profit may be a strong temptation for the prospective business owner, an interest in the business itself is one of the most important prerequisites for a successful business. Even with large profits, a small business owner without an interest in the business itself is a problematic business model.

For small business owners who are not interested in the business in which they are engaged, their lack of interest in the industry itself will eventually result in unhappiness, decreased customer service, and poor business performance. In small businesses, there is such a close relationship between the company and the business owner that an interest in the business segment is a necessity.

In purchasing a turnkey business, it is not only important to find a financially stable, healthy company. It is also vital that a perspective owner is interested in the work that the company does, as well. The balance between profit and personal interest is vital in creating an effective small enterprise.

Selecting a Business: Avoiding Common Pitfalls, Hazards, and Risks

Up until this point, this book has dealt primarily with how to select a business, how to ensure that it is the right one for you, and how to correctly go about doing due diligence. However, finding the right business is more than knowing what to do. It is also knowing what not to do.

In this chapter, we will talk about how to avoid certain hazards when purchasing a turnkey business.

Liability Status

Liabilities can be unpaid loans, unsafe working conditions, or even significant benefits packages promised to former employees. When purchasing a new business, knowing to whom the company owes money, and knowing whether or not a new owner will also take over the responsibility for these debts is one of the most basic and most often overlooked points in buying a business.

Items like these are often detailed in the prospective owner’s letter of intent and in the contracts that are signed at the closing deal. Know what liabilities will stay with the current owner and what liabilities will transfer to the new owner.

The area of liability status can be rather complicated. Seeking professional advice on how to determine liability status and how to minimize future liabilities effectively may save quite a bit of money in the long run.

The next section will concentrate on avoiding the most common hazards of selecting a business.

Employee Status

Talking to employees of the business is one of the best ways to access information on how the business runs, what works, and what doesn’t. Involving the employees in the process will not only foster a positive employer-employee relationship but can also be a valuable tool for the prospective buyer.

Asking the employees questions can be a window into how the business is run. Some of the more illuminating questions are:

Are you happy in your job?

Is there anything you would like to see done differently?

What is your relationship like with the current owner?

What is the best part about coming to work?

What is the worst part about coming to work?

Positive reports from the employees will help give a good idea of how to run the business by following in the owner’s footsteps Negative reports are also valuable in that they show where the previous owner was unsuccessful, and therefore how to run the business more effectively.

It has been shown time and time again that involving employees in decision-making processes, and that showing them that the management values employee opinions both increases profitability and decreases employee turnover rate. Talking to the employees from the outset establishes a positive precedent, and clarifies how the business is actually run.

Regulation Status

One of the most positive aspects of buying a turnkey business is that, in theory, all permits have been applied for, received, and regularly renewed. However, before purchasing the business, it is essential that a new owner make sure that the building that houses the company is up to code, any relevant patents are up-to-date, and all permits and regulations are taken care of.

Buying a business that has fallen behind on their regulation and patent renewal means a loss of time and a loss of money for the new business owner. Because the new owner is responsible for any and all regulatory problems, even if they are the fault of a previous owner, hiring a building inspector may be the best way to deal with possible problems. By going over all regulation, patent, and permit papers with a professional, a new business can open safely and legally.

Supplier-Business-Consumer Status

The success or failure of countless businesses has relied on the relationships that have been cultivated with suppliers and customers. Knowing how a business has dealt with its suppliers and customers in the past helps to paint a picture of how the current owner does business, and what relationships lie in store for a potential new owner. Poor business relations can have a decided negative impact on business performance. Knowing how the previous owner interacted with business contacts is a helpful compass in learning how to treat new contacts.

Learning who the suppliers are for a prospective business can serve as an interesting glance into the workings of a company. Knowing everything from what company provides the supplies and products for a potential business to where they are located to what they have to say about the prospective business provides valuable insider information. Suppliers have a very good idea of how the businesses of their customers run and what problems these companies may have.

Likewise, talking to the current customers of a business can help you get an impression of how the business is run and what will be expected of a potential future owner, as well as quite a bit of intangible information that written reports and financial documents will not make clear.

Suppliers and Customers make the base of the triangle upon which your business will stand. Outside of employees, they are the most knowledgeable parties about a prospective purchase, and talking to them will almost always help you to gain an understanding of areas that could use improvement. Knowing the information that can be provided by suppliers and customer will be invaluable to understanding how a business truly works. Becoming involved with these issues early on will help tune a prospective owner in to the needs of a new business.

Financial Status

One of the best indicators of business health is a company’s financial statement. When considering the purchase of a company, make sure that a thorough examination of the company’s financial documents and statements for the past three to five years is conducted. Hiring a reputable auditing firm to look into the company is another way to ensure that all the pertinent information on the company has come to light.

Some important questions to ask about the financial status of a company include:

• What is the gross income of the company?
• What is the adjusted gross income of the company?
• What is the annual profit of the company?
• Do the company income and profit differ by a large amount?
• If so, where does that money go?
• What sort of expenses does the company have?
• How much money is spent on product development?
• How much money is spent on marketing?
• How much money is spent on special sales?
• What is the financial outlook on the company’s major suppliers?
• What is the financial outlook on the company’s major customers?
• Has the company ever been in financial trouble before?

The most information to have about a prospective company is how much the business earns, and how those earnings are spent. Many new business owners have entered into the company without understanding the intricacies of the business financial statement, and have found out in just a few short months of their purchase that the company heavily in debt.

The financial well-being of a company is the most important indicator of its health. Mysterious payouts, bad investments, and poor profit performance are all warning signs of a company to stay away from. Prospective buyers should invest a large portion of time on due diligence in this area.

Environmental Status

As news about the Earth’s ecosystem becomes more and more prevalent and news about global warming makes almost daily headlines, environmental issues are coming to the forefront of everyday life. Because of this, already strict environmental regulations that have been placed on businesses are becoming stricter each year.

For many businesses, waste and energy use are heavily regulated. Before purchasing a company, it is important to determine if it currently has environmental regulations on it, and if those regulations are being upheld. New laws are passed continually, so it is also imperative to research any new regulations that have been put in place or will be put in place before the business changes hands.

Once the business has transferred owners, it may be necessary to go over these regulations and make changes in the company’s regular operations so that the company becomes compliant with regulations. Having an environmental professional or environmental lawyer review company rules and regulations may save time and future fines.

Intellectual Property Status

Intellectual Property refers to trademarks, designs, copyrighted works, and even pieces of art. It is best to know who owns what ideas and who holds the rights to these particular ideas before purchasing any business.

For some businesses, like franchises, finding information on Intellectual Property Status is rather uncomplicated. Most marketing materials and promotional goods are within the rights of the franchise business to use, though it is always a good idea to talk to the parent corporation to learn what comes under the umbrella of Intellectual Property Status, and if the franchise branches have the right to use the trademarks and copyrighted slogans of the corporation that owns them.

For non-franchise businesses, from a local sandwich shop to a neighborhood fitness center, it is necessary to perform due diligence to find out whether everything the business uses as intellectual property is within their right to use. In simple terms, it must be determined that the small business has secured the right to use what might be construed as someone else’s intellectual property, whether it be advertising and promotional materials, software and computer programs, copyrighted and trademarked images, logos, or trade secrets.

If the business has not taken these steps, it is still possible that the company will be a profitable purchase, but it is first necessary to secure intellectual property rights either as soon as ownership transfers, or even before, by requesting that the current owner take these steps.

Investigating Tax Status

Trouble with the IRS is quite serious. A thorough investigation of the company’s tax status is vital to the decision-making process. Do not merely glance over the documents. Rather, take the necessary time to review them, and if necessary, enlist the help of a professional to give details on and explain the outlook on the company.

In order to avoid unexpected financial problems, there are a few steps that should be taken before signing any document. Request and review the tax documents of the business and look at tax returns filed for the past three to five years. Close inspection of these documents alone can give you a clear picture of not only how profitable the business is, but it will clarify what might be owed in back taxes, as well. Simply looking at these papers can be one of the best indicators of whether a business is successful or not. If the company is plagued with tax problems or financial difficulty, it may not be worth purchasing.

Knowing how the business has dealt with their financial statements and taxes in the past can be a window to viewing their current situation. In turn, it can help determine whether or not you are suited to take over the business.

Tax Status

Buying a business does only mean a transfer of legal responsibilities. It also means that any tax problems the business had under a former owner will transfer to the new owner, as well.

Some important questions to ask include:

• What is the current tax status of this business?
• Do the owners owe any back taxes?
• Have the owners been penalized for not making tax payments on time in the past?
• Has the company been penalized for not making tax payments on time in the past?
• Has the company ever been audited?
• If so, what were the findings of the audit?
• Are the company financial records clear and easy to understand?
• Does the company use an independent accountant, or is the accountant in-house?

If the business has problems with the IRS, this could be an indication of more serious problems with the owners or with the business model itself. It is important to remember that any tax and financial troubles will change hands when the business transfers hands.

Litigation Status

When a business is purchased, the responsibility for any outstanding litigation or legal troubles also transfers hands. At this stage it is vital to have a lawyer look into the current legal standing of the company.

Some important questions to ask are:

Have any claims or lawsuits been filed against the business?

Is the company presently dealing with any outstanding litigation?

Has the company ever gone to court before?

If so, did they win or lose?

What is the reputation of this business within the legal community?

These are all questions that need to be answered before proceeding with a purchase. Oftentimes, a lawyer can help you answer these questions, and can draw up a contract for purchasing the company that includes a clause dealing with liability, indicating that any and all outstanding liability should be placed on the previous owner. Without this kind of clause, the responsibility for any legal problems with this business under its current owner will transfer to you at the time of purchase.

While outstanding litigation does not automatically mean that the business should be immediately rejected from consideration, it does mean that it will need to be looked at more closely, which will cost both time and money.

Aspects to Consider

Prospective buyers must look closely at several different aspects of the business before even considering the purchase of the company. These aspects include a physical inspection, which means ensuring that the company is up to safety, building, and health codes and that it meets all requirements set forth by the federal, state and local governments. Building inspectors and other professionals can help in this task, but this physical inspection is only one part of the total picture.

The other aspects of due diligence are more complicated than the physical inspection, and because they are more involved, they require serious attention to detail. For those with limited prior business experience and even for those with business experience who know the value of extra precaution, lawyers, accountants, and other advisors are invaluable when doing the meticulous work of due diligence. Experienced lawyers, accountants, and other advisors are accustomed to dealing with due diligence cases and are familiar with the laws in their local areas and personal fields of expertise. They can be valuable guides on the path to setting up a successful business.

The list of areas and issues to look at when doing due diligence is rather extensive, and includes litigation status, tax status, intellectual property status, environmental status, financial status, and supplier-business-customer status, regulation status, employee status, and liability status of the company.

Inspecting a Potential Business: Ensuring the Worth of a Prospective Investment

The previous chapter covered how to purchase a business and make the most of the purchase. However, there are several precautions that anyone who is interested in investing in a turnkey business should take before even thinking about putting down money. One of the most important aspects of buying a business is due diligence.

Due Diligence is a term used in business to describe the inspection of all aspects of a company to ensure the value of the prospective purchase. Questions about possible code violations, financial troubles, or criminal connections are best asked before purchasing a company, not after the business and its problems has changed hands.

Most of the essential due diligence is a matter of going through what has been put on paper. This means performing in-depth analysis of documents and records in order to make sure that any problems or potential problems are obvious long before the company is purchased and changes hands. If the current owner is trying to hide something, it will almost certainly come to light if the company’s documents are carefully examined.

Owning a Business- The First Few Months

For those who are new to the world of business, major changes are to be expected during this first venture into the industry. Many newcomers to the online business world find themselves almost constantly online, obsessively checking in on their new company to ensure that it is running well. Others incessantly search for new ways to market their business in the ever expanding online world. It is good to be prepared for these contingencies and know when work is good for a business and when it becomes detrimental.

Compared to the work and strain of starting a business from scratch, buying a turnkey business is relatively unproblematic. However, knowing that some lifestyle changes are in store will help the newcomer to the business world is prepared to adapt to a more involved lifestyle.

When it's Time to Purchase

With the proper research, exploration, and preparation, the actual purchase of a business is rather straightforward. Foreknowledge of costs, time investment, and general industry information removes the stress from the act of purchasing and alleviates buyer’s remorse, as well.

For online business owners, the moment the business goes live, the profits begin to accumulate. Online turnkey business packages are fully loaded and relatively simple to launch. In order to make the launch of the business as unproblematic as possible, ensure that the company that has sold the business is available to help navigate the first few weeks of business.

Though online turnkey businesses are comparatively easy to start, they can be unwieldy for those new to the industry. Guidance from the professionals who did the front-end work to build the business is an invaluable tool. If the company that is selling the turnkey business does not offer assistance and customer service with the business package, it is best to take your business elsewhere. Input from former owners of the company will be invaluable in the first few weeks after the business opens.

Determining a Company's Worth

• How much is web hosting going to cost per month?
• How much is will domain name hosting cost per month?
• How much will website development cost?
• Will marketing tools come with the package?
• If not, how much will they cost?
• Does customer support come with the package?
• If not, how will I deal with future questions?
• What sort of guarantee comes with this package?

Each of these costs relates directly to how much time and effort has been put into the development of the business. While the company selling the internet turnkey business should be making a profit, if the product development is lacking even an inexpensive company will be a bad investment. Knowing the outright cost of an internet start-up turnkey company is the first step, but looking into the months and years following is also important.

Internet turnkey business opportunities are comparatively quite inexpensive, but they are still serious business deals that deserve careful consideration and reflection. Knowing the costs of an internet business before entering into purchasing negotiations will better prepare the new entrepreneur for any unexpected surprises in the process. It is always a good idea to prepare with research and inquiry.

Determining a Budget – a Framework for Successful Ventures

In any business venture, a prospective business owner should have a preliminary budget ready and outlined. Coming up with a reasonable financial target sheet that outlines how much a business is worth, how much the entrepreneur is willing to pay, and how much operating expenses will affect these numbers can ease the process of purchasing a turnkey business considerably.

For the internet turnkey business venture, there is enormous variation in the prices of businesses. Behind the marketing, the asking price, and the expectations of salespeople, finding out how much the business is truly worth can be determined by looking at a number of factors.

Quality Control- Some Things to Consider

While the new business owner cannot be sure of the quality of the proffered product until he or she purchases the internet start-up business package, a few cautionary measures will make it more likely that the package is of good quality.

Many companies will have a listing of the businesses that they have sold. Oftentimes, the successful companies will be listed prominently on the website. Visiting these sites can elucidate just what kind of website is on the table for purchase.

Some questions to ask when looking at example websites include:

• Do I like these websites?
• Are these websites easy to use?
• Are the products displayed in a logical and easy-to-understand manner?
• What do I like about these websites?
• What don’t I like about these websites?
• Am I interested in buying these products?
• What could be better about these websites?
• What sort of items would I like to see for sale on a website?
• What sort of information would I like to see on a website?
• What are people saying about these websites?

These are difficult questions to answer without looking at the actual products and tools that come with the business package. New business owners are in a unique position to view a website in the same way a customer does, and by using the available equipment, can create a website that is not only suited to the needs of the customer, but one that is popular and profitable.

Methods of Appraisal

Testimonials are written statements that praise the advantages and benefits of a product, and are another method of appraising a possible internet start-up package. Many companies falsify these statements, so concentrating on testimonials that can be authenticated might be the best way of examining how professional a company is. In the internet business world, it is best to look for testimonials from people who have gone on to build a successful business with the company’s turnkey package.

Guarantees are often the best way to decide which internet start-up package to buy. In making a business deal, it is always a good idea to proceed with reasonable precaution, and purchasing from companies that offer guarantees is a good safeguard. If a new business owner does not care for the format of the website, if the marketing materials provided are ineffective, or if other issues come to light after the purchase, the company should refund all fees within thirty days. Reputable companies will offer a refund for dissatisfied customers.

Even though many companies that sell online businesses are strictly Internet-based, looking for a physical address, phone number, or detailed contact information is a good way of ensuring that the company is reputable. Companies with defective start-up businesses may not list their true contact information. Being able to contact a human being in case a problem arises is well worth the time it takes to buy from a reputable company.

Looking at certification, testimonials, guarantees, and authentic contact information can be a good compass in determining which companies offer legitimate internet start-up packages. Doing the correct research will likely eliminate the dishonest or fraudulent companies.

Evaluating the Package

Most Internet start-ups are available in the form of a package or packaged plan. A pre-made plan means that there is very little work for the potential business owner, as all of the necessary work to run a business has been bundled for sale.

A common turnkey business package will include the website itself, internet hosting and a domain name, a selection of products for possible sale, marketing tools, promotional methods, ideas for launching a new business, and free consultation.

Though the new business owner will be running the business alone, significant portion of the hard work necessary to the process has been taken care of by the company that sells these business start-up packages. However, in order to make sure the packaged business is a worthwhile investment, it is good to consider the pros and cons of the deal.

Looking at the company certification can be a good way to determine the value of a deal. Though not all great companies are certified, and though a good number of mediocre companies are, certification is a good way to determine a company’s quality and professionalism. Simple places to check for this information include the Better Business Bureau, the Better Internet Bureau and other quality control organizations. These associations keep records on the company’s customer relations and the company’s ability to meet stated promises.

Making a Good Choice

There are so many website business models that, regardless of the interests of an individual entrepreneur, there is likely a business model to match. However, it is important to consider not only the interest, but the skills and knowledge that an individual brings to the table, as well. A new business venture can be an opportunity to learn about a different industry, but it is essential that the would-be entrepreneur is willing to invest the time and effort to become an expert in the field. If the interest in a particular industry is great enough that it endures the significant time necessary to research the field, then the entrepreneur likely has the right amount of enthusiasm to start and run a venture in a totally new field.

Though the turnkey industry is a fantastic place to learn about a new field, it is important to remember that, without enough grounding and research in the field, the business will likely fail. If there is any doubt at all in the mind of a new entrepreneur about the prospective field, it is best to go with an option that is closer to the experiences and understanding of the new business owner.

When purchasing an online company, the overall price is vastly lower than that of a traditional franchise or physical turnkey business. However, while the cost is less, the purchase should still be taken very seriously. An online company is no everyday impulse purchase – it is a serious opportunity for profit and financial gain, and should be treated as a meaningful business venture. Once the skills necessary to run a successful business have been honed, then a business owner can face new ventures, challenges, and opportunities.

Narrowing Down the Options

There are numerous types of online businesses available for immediate purchase. Auction sites, Adsense-related sites, and resale sites are just a few of the many options that exist. However, for a potential business owner, discovering what type of business is best-suited to his or her personality, expertise, and interest can be a challenge.

In locating the ideal online turnkey site, some useful questions to consider are

• What kind of websites do I frequent?
• What kinds of websites do my friends, family, and acquaintances visit?
• Where do I do my online shopping?
• What do I like about the websites I visit?
• What do I dislike about the websites I visit?
• What could I do to improve on these websites?
• Do I enjoy reading about a particular topic online?
• How large is the web-based community demand for the product I will offer?

Finding a Business for Sale

The most straightforward way to find a ready-to-start Internet business is to search the Internet itself. By entering the keywords “turnkey business” into a search engine, a myriad of business possibilities will come into focus.

In order to get a clear idea of what a ready-to-start Internet business looks like, it is a good idea to look at a few examples of these sites, researching what the sites look like, what they sell, and how successful they are. By investigating the realities of the turnkey website industry, an entrepreneur can find what possible businesses and types of companies are a good match for him or her.

Internet businesses are extremely easy to locate. With a simple search of the internet, a new entrepreneur can find and purchase a business in minutes. However, for a wise investor, the research on the pre-made company package will make the difference between a profitable business and floundering business.

The Ready-to-Start Turnkey Business

The term “turnkey” is used to describe a business that already exists and simply changes hands when sold. Calling a turnkey company a “ready-to-start” business, then, may seem like a contradiction in terms. However, this is not always the case. Ready-to-start internet businesses are, in a sense, already established. They are so simple to start, that they are considered a part of the turnkey sector.

Purchasing a business in the ready-to-start internet turnkey sector is similar to purchasing an existing company or a franchise. However, the action takes place on a much smaller scale and, much of the time, from the home of the would-be entrepreneur.

With the right amount of online research, an internet start-up company is the quintessential turnkey business. Other companies do the planning and development work, build the website, and create tools to help manage the business. The new business owner simply uses these pre-made tools to build a successful internet business. The pre-made business is based on a successful business model, so with the right care and attention, it can be a profitable venture.

Because there is such limited risk involved in internet turnkey companies, and because such they require such a comparatively small initial capital outlay, online start-ups have become exceedingly popular in recent years. Despite the popular enthusiasm for these sites, however, a wise entrepreneur needs to be cautious. Though there are many different types of online start-up companies that are available for a low initial cost, these companies are not all of high quality. In fact, companies that are originally cheaper oftentimes end up costing new business owners more money and time than initially more expensive ventures.

With the right research, any potential business owner can find a viable ready-to-start internet turnkey company and make it a thriving business.

The Day of Closing

If all of the previously agreed-upon terms have been met by the date of closing, then the business deal is able to proceed as planned. On the day of closing, the buyer and seller meet in person in the presence of any and all appropriate or related parties. The paperwork will be signed, the payment changes hands, and the business becomes the property of the new entrepreneur.

For a new business owner, getting ready to close the deal is an exciting moment wherein all of the work, research and commitment required to reach a goal comes to fruition. If properly prepared, closing the deal can be the start of a flourishing business venture.

Getting Ready to Close the Deal

After finding a suitable turnkey business, drafting a Letter of Intent, and signing a Purchase and Sale Agreement, the prospective business owner has completed almost all of the steps necessary to owning his or her own small business. Before the company can change hands, however, there are a number of procedures that the entrepreneur must make sure to complete.

Before a business deal closes, the soon-to-be business owner must ensure that all pertinent loans are approved and that financing is secured. Loans and capital backing falling through at the last minute is not an unknown in the business world, so double and even triple checking the financial backdrop to a deal is always a wise idea.

Additionally, the soon-to-be business owner must ensure that all contracts and agreements are legally sound, and that there is no ongoing litigation regarding the business deal. Lawsuits or legal challenges that crop up early on in the process of buying a business often foreshadow future legal problems, or ongoing difficulties with previous owners.

Finally, the soon-to-be business owner must ensure that a due diligence investigation is completed satisfactorily (due diligence is covered in the next chapter). A thorough investigation of the potential business can either exonerate a company of any suspicion of financial or criminal difficulty, or can reveal lasting problems. In either case, this analysis of the company is invaluable.

Financing and Payment vis-à-vis Business Size

At this stage of the business purchasing process, the potential owner of a turnkey business should have a clear plan for how he or she will procure capital for the venture. Funding a turnkey venture will depend in large part upon the size of the company.

Larger turnkey ventures typically have more readily available funding. Banks, investors, loan offices, and individual venture capitalists are all ready sources of capital for the proven business model. If the company in question has been wisely chosen, its business model is successful, and its financial statements are in order, then securing capital should be a relatively straightforward matter.

For smaller ventures, locating funding can be a more challenging process. Capital to purchase or start a small turnkey business is less than that required for a larger business, but locating that capital can be quite difficult. A small business purchase will not draw in as many potential investors, so potential entrepreneurs must either use money from personal savings or secure a personal or small business loan. For some deals, the former owner of the business will finance the cost of the business, allowing the new owner to purchase the company without turning to outside capital funds. The challenges of securing funding that face a potential small business owner are greater than those faced by a potential large business owner, and being aware of these difficulties will help potential owner-managers know what to expect when starting their small business.

During the capital funding stage of the purchasing process, the would-be entrepreneur must be prepared to procure funds based on the realities of the prospective company. Though for larger companies, this may be a comparatively simple matter, for smaller companies, it may be a challenge.

The Importance of Getting it in Writing

After negotiations with the seller, the prospective business owner must draw up what is called a Purchase and Sale Agreement. This agreement outlines the terms and conditions of a deal, and basically ensures that the deal is represented on paper as closely as possible.

Though some bookstores and websites sell standardized forms, it is very important that at this stage a lawyer is secured to draft, or at the very least review this document to determine legality and potential loopholes.

Purchase and Sale Agreements typically contain the details of the deal, including the price to be paid, how it will be paid, the assets and inventory that will come with the business and who is liable once the closing occurs. Purchase and Sale Agreements should also address how the business will be run prior to the transfer of ownership. It is the seller’s responsibility to be truthful in representing their business, and it is the buyer’s responsibility and right to know everything there is to know about the business. This document is meant to ensure that every aspect of the business is clearly spelled out, and should therefore include all background information.

This legally binding document contains risks for both the seller and the buyer, so the question of liability is an important one. If, for example, the deal closes and the buyer assumes liability for all aspects of the business, any litigation brought against the company for an incident occurring under the old owner will also be the responsibility of the new owner. There are countless issues like this one hidden within the lines of a Purchase and Sale Agreement, and as such, the prospective owner should read the contract completely and obtain legal advice.

Because the Purchase and Sale Agreement is a legally binding document, there are a number of issues for which a potential business owner should consult a professional for advice and guidance. There are many risks associated with signing, so any potential owner should be ready any wary when entering this stage of the business purchasing process.

Making an Offer

After determining how much the business is worth, the next step of the business purchasing process is making an offer to the current owner. Making an offer is most often accomplished through drafting a letter of intent.

A Letter of Intent is sometimes referred to as an LOI, a memorandum of understanding, or an MOU. A letter of Intent is a kind of non-binding contract that outlines the proffered bid in detail including the terms of the proposed agreement. The purpose of the LOI spells out the main points of a business deal, and it serves as a kind of protection if a deal breaks down during negotiations. Very rarely does this letter go without alteration.

At this stage of negotiations, both the current and the potential owner must enter into a series of discussions regarding payment. Not only must the price be agreed upon, but the method of payment must be, as well. Installments are a common method of payment, the only shortcoming being the relatively smaller sum received by the current owner up front. However, if the payment for the business comes in a lump sum, the current owner loses out on the interest that would accrue over the course of installment payments. Taxes also figure in to this part of the negotiation, as in either case, the tax liability is a consideration.

In making an offer to a business owner, having a trusted lawyer is imperative to brokering a successful deal. Lawyers can help in the process of making an appropriate offer once a suitable business is decided upon, and they can also be useful when involved in legally transferring rights from owner to owner, and ensuring that a new business is free of liabilities and legal responsibilities that may be left over from previous owners. Obtaining a lawyer to help in making an initial offer can save significant time and money.

For an interested entrepreneur, striking a balance between the interests of the seller and buyer is the key to a successful business deal. Proper research and ample professional advice is necessary to brokering a satisfactory arrangement.

Determining the Value of the Business

When determining the value of the business, there are scores of factors that must be taken into consideration. Some of the most important points to bear in mind include:

• How will this industry change in the coming years?
• How does the economy affect this business now?
• How will the economy affect this business in the future?
• How has the company been able to compete in past years?
• How will this business retain its competitiveness?
• If property assets are part of the deal, how will they appreciate or depreciate?
  What kind of merchandise inventory does the business have?
• Are office supplies are included in this deal, and if so, how much are they worth?
• What sort of reputation does this business have in the community?
• How is the customer service and product reputation of this business?
• What is the financial standing of this company?
• What is the location of the business like?
• How will the location of the business change in the years to come?
• What sort of tax liability will this purchase be when I do my taxes?
• What sort of long-term return am I expecting on my investment?

Understanding how much a business is worth is one of the most challenging steps of the business purchasing process. It is important to investigate the likely outcome of the investment, and whether it will be an overall positive or negative venture. Even if the potential buyer is perfectly-suited to the industry, an unprofitable company is not a wise business investment.

Determining Worth

Once a potential business owner has found a well-matched business, it is essential that due diligence be performed. Before purchasing the company, every aspect of its operations must be investigated to find out profitability, business plan viability, and even suitable offer price. For more on due diligence, please see Chapter Six.

After due diligence has been suitably executed, it is time to consider the financial aspects of purchasing the business. There are many different ways to figure out the true value of a business, and though the services of a professional asset appraiser will likely be necessary, it is important to note that a general idea of how much a business is worth may help determine if further interest is warranted or even in the best interest of the prospective buyer.

The person who is the most knowledgeable in the business is the best situated to give a realistic picture of the state of the business. Asking the owner to give a projected financial statement can be a useful window into how the business may operate. Looking at this document and comparing it to past statements can also show a potential owner how the present owner does business, and any glitches in the present company’s accounting that may exist. All too often, the difference between what a potential owner believes a company to be worth and what a previous owner believes it to be worth is so great that an early end to business negotiations is ideal.

Exploring Personal Contacts

Once a prospective buyer has gone through this list of potentially knowledgeable community members, it is often a good idea to delve even deeper. In thinking about who may have helpful information or knowledge to share, it is useful to consider any and all acquaintances, friends, or family who may have first-hand knowledge of buying a business. Additionally, anyone who is well-versed in the area in which a potential business owner is interested in buying a company may be a good contact. Finally, asking a friend who has a large number of contacts may save time in the long run.

Anyone and everyone might just have something to offer during this period of searching. Oftentimes the most valuable information comes from the most unexpected people, so exploring contacts can be priceless.

Advertising Representatives and Investment Bankers

Talking to Advertising Representatives

Local advertising representatives have extensive relationships with the local business community, and are often the first to know when business opportunities are available.

Making contacts in the advertising industry will put a prospective buyer in touch with those most likely to know when an opportunity will be presented. More often than not, representatives from advertising agencies will be willing to share valuable information with a buyer who is candid about their intentions and curious to know about business opportunities.

Talking to an Investment Banker

Investment bankers have seen countless business start-ups. They have also seen these same businesses transfer hands, flourish, fail, and start again. Investment experts have extensive experience in the industry and they know what it takes to make a business succeed, as well as the reasons why businesses fail. They are an excellent resource for learning how to effectively run a business.

Additionally, Investment bankers advise countless people every day on finding great business opportunities. Asking an investment banker about the ins and outs of particular industries, as well as business opportunities can be a quick way to ascertaining how an industry functions and moves.

Talking to a Lawyer

Lawyers can also give advice about how to find an appropriate business. Once the general industry is decided upon, lawyers can then help prospective owners investigate their potential business options properly.

Experienced lawyers can offer expert advice based on practical knowledge, and can save untold time and money. Not only are lawyers fluent in the language of government, they are most likely knowledgeable about local codes, regulations and permits that must be secured in order to operate a business lawfully. Because of their knowledge in this sector, and because of the advising that they do for other businesses, lawyers often have contacts in the local business community, and are knowledgeable about available opportunities.

In giving advice and assisting in locating a potential business, lawyers have unmatched experience. Once the decision to buy the business has been made, and certainly before any negotiations take place, make sure to secure legal counsel.

Business Owners and Suppliers

Talking to Business Owners

After considering what kind of business is the most appropriate for the particular needs of a small business entrepreneur, some research is necessary to find valuable business opportunities.

For would-be small business owners, talking to people who own businesses in the relevant industry can be a significant step in the right direction. Business owners will be able to assist in pointing an entrepreneur to useful opportunities, appropriate contacts, or even websites wherein applicable business prospects are listed. Using their experienced insider industry knowledge is one of the quickest ways to locate where the best opportunities are hidden.

Talking to Suppliers

Once a prospective buyer has determined what kind of business he or she would like to buy, it is often a good idea to talk to suppliers for the business.

Suppliers are incredibly knowledgeable about the industry in which they work, and typically have the latest information on local businesses and enterprises. It is often the case that suppliers have a clear idea of which companies are considering selling, when, and why. They are invaluable repositories of information.

Finding a Business for Sale

Once an entrepreneur has a firm grasp of the type of established business or franchise most suitable to his or her needs, the active search for an actual company can begin.

For a potential turnkey business owner, having very specific requirements about what sort of business he or she desires is helpful in finding an ideal business opportunity. However, beginning the process of searching for a business with a flexible, open-minded approach can open up a world of heretofore unconsidered opportunities. For a prospective small business owner, it is a good idea to reflect on what aspects of a potential business are essential to the entrepreneur and on what aspects he or she may be able to compromise.

Some questions that will help to organize ideas and narrow down search options are:

• What type of business do I want to buy?
• How will I fund this business?
• Where do I want to work?
• What skills do I have that I can use to run this business?
• What resources do I have to become a better business owner?
• Who are the experts in this field of business?
• What research do I need to do in order to become an “expert” on this type of business?
• How involved will I be with this business?
• When would I ideally like to own my business?

For a small business entrepreneur, a clear idea of what constitutes an ideal business can be invaluable to the search for a suitable venture. Recognizing critical elements will assist the entrepreneur is knowing when to be accommodating and when to be unyielding in finding an ideal business to purchase.

Serious Commitment Leads to Great Success

For the prospective small business owner who is willing to be directly involved in the business, there must be a serious commitment to the company through time, labor, and attitude. Profit has a high correlation to how much time and effort an owner-manager expends. Involved owner-managers have a clear idea of the inner workings of their company, with a precise understanding of everything from employee needs to inventory requirements, and from the company’s yearly consolidated financial statement to customer requests. Though the commitment is considerable, for companies led by an involved person, the benefit to employees, to operations, and to the company financial statement is immeasurable.

Before the purchase of a turnkey business, the prospective business owner must decide if he or she will be an active or passive participant in the company. Each management method has its advantages and disadvantages, but knowing beforehand what style of management is best-suited to a business and to a particular person can mitigate the conflicts that arise from incompatible expectations.

Active Involvement with the Business

The way small business owners run their companies is as varied as the kinds of small businesses themselves. Small business owners can be deeply involved in the everyday operations of their businesses, or they can be, in effect, absentee managers. For a potential business owner, having an idea about how much involvement he or she is willing to commit to can narrow down the field of business options as well as help clarify expectations on the parts of both the owner and prospective employees.

Some useful questions to ask are:

• How much time am I willing to commit per day to this business?
• How much time am I willing to commit per week to this business?
• How involved do I want to be in minor decisions regarding this business?
• How involved do I want to be in major decisions regarding this business?
• How much do I trust others in running day-to-day operations of this company?
• How confident am I in the process of hiring employees?

Business owners who take a hands-off approach can expect a smaller profit than owners who are intensely involved in the everyday workings of the business. Absentee managers not only must hire more employees to make up for their missing labor, but they typically have a comparatively high rate employee turnover and internal theft, as well. For the turnkey business owner who is only interested in supplementing his or her income without committing to serious day to day involvement, this may be acceptable.

Areas of Expertise as a Consideration When Purchasing a Business

Many people think of buying a ready-made business as a process that requires little to no planning and minimal expertise. Knowing the particulars of an industry can be invaluable to running a successful company, but knowledge about how one’s own skills match the requirements of a specific industry can be very useful in running a potentially lucrative business venture. While numerous small business owners purchase their businesses without a consideration of their own knowledge and skill, the most successful entrepreneurs know that capitalizing on their strengths can drive a business to succeed.

Once a potential turnkey business owner has decided on the field in which he or she would like to work, some questions to consider are:

• What has attracted me to this field?
• What are some potential disadvantages to working in this field?
• What kind of working experience do I have in this field?
• Am I willing to enroll in a relevant business class at a local community college to improve my skills?
• What sort of resources do I have to turn to if I don’t understand a particular aspect of this industry?

Turnkey businesses can be a fantastic opportunity for an entrepreneur who would like to garner experience outside his or her sphere of knowledge. While broadening horizons is a wonderful way to feel completely engaged in the operation of a new company, purchasing a turnkey business in a field that is completely removed from one’s personal experience can be a substantial risk. It is essential that a new business owner become educated on the specific industry into which he or she will soon enter. For a business owner who is completely new to an industry, this research becomes even more important.

The vast majority of business owners have a substantial level of knowledge about the industry in which they are working. Though turnkey businesses can offer potential buyers an opportunity to change fields that no other business opportunity can, knowledge about the field is essential. With the proper research and preparation, any turnkey business sector can be a successful undertaking.

Choosing the Right Type of Business

Turnkey businesses already exist in vast numbers. The industry spans everything from home computer-based shops to national chain stores. Deciding what type of company to buy is one of the most basic yet essential issues for a prospective turnkey business owner to consider.

Some important questions to consider are:

• What size is my ideal business?
• What is the largest budget can I handle?
• What is the smallest budget I will consider?
• Do I want to run a service business or a retail business?
• Do I want to work from an office?
• Do I want to work from a store location?
• Do I want to work from home?
• Do I want to hire employees?

Having a clear idea of the fundamentals before beginning the search for a business will help the new entrepreneur narrow down the myriad options available, and find the best-matched business for his or her needs.

Funding the Purchase

Most people start their business ventures with a loan from a bank. Securing a loan can be quite an endeavor when starting a business from the ground up. Doing so requires a detailed business plan, a proven business model, and some sort of collateral. The many steps necessary for a loan application to be approved can daunting, and for many start-up companies, their business models, and in turn their applications, are unsuccessful. For turnkey businesses, however, the rate of successful loan applications is much higher than for start-up companies.

By definition, turnkey businesses have a proven business model, making the likelihood of a small business loan application quite high. For a would-be turnkey business owner, one of the most important steps to take is to ensure that a potential business will be profitable. If the prospective owner has found a profitable business for sale, then not only will he or she be successful in the final venture, but they will be much more likely to be approved for the initial loan, as well. While there are no true guarantees in business, the more likely a business is to make a profit, the more likely a loan officer is to fund the venture.

The best way to fund a turnkey business purchase is through a bank loan. Though many small business owners struggle to prove that their business model will be a lucrative one, the prospective turnkey business owner need only ensure that his or her future company is built upon a sturdy foundation of profitability and success.

Uniform Franchise Offering Circular

Franchises in the United States are required to publish something called a Uniform Franchise Offering Circular, or a UFOC. In this document, the parent company releases information specific to the franchise. This circular can be one of the most informative steps to understanding what is involved in running a successful branch of a franchise business. In conjunction with professional advice from lawyers, bankers, and the franchisees themselves, this step can be the most revealing in the business buying process.

Some questions to consider when looking at a franchise industry include:

• What is the past performance of this franchise?
• How long has this franchise been operating?
• How large is this business as a whole?
• What kind of support system does the parent company offer for new franchisees?
• How often has this business changed hands?
• Does this franchise have a history of legal problems?
• What are the terms of the required contract?

Though a franchise is already set up and ready for the change of hands, entering into this industry is not without its risks. The prepared small business owner will do more than the minimal amount of research to discover is the franchise business model is well-suited to his or her needs, and if so, whether a particular franchise is economically viable.

The Existing Business Franchise

This existing business franchise category includes many coffee, restaurant, and fast-food establishments, as well as any other businesses that are a part of a chain overseen by one parent company. Individuals buy one or more locations of the business chain. This franchise business model offers small business opportunities to people everywhere.

The image of the franchise business model is one of credibility and reliability. This image instills confidence, but just because a business is part of a chain does not mean that it is not without its risks. Franchises, like all other businesses, have a certain ratio of risk to reward. Purchasing a store means laying down a significant amount of capital, and as such, it is best to look at a number of issues that present themselves in the field of business.

Many new business owners believe that if a franchise opportunity fails, then he or she can simply close the store. Oftentimes in the franchise industry, the new owner must sign a personal agreement or an agreement regarding the length of time a franchise has to run. Even if the business fails, the owner is responsible for the yearly minimum franchising fee. These payments can continue on for years, and add up to significant amounts of money.

Purchasing the Business: Steps to a Successful Venture

Purchasing a business can be something of an ordeal for even the most seasoned professional. With enough research, information, and preparation, however, any business purchase can be a successful venture. Having a general understanding of the business-purchasing process can be an excellent way to become educated in how to conduct the most successful business deal possible.

As stated earlier in this text, a turnkey business is one way to get involved in the business world while dealing with relatively few obstacles and barriers. Purchasing a turnkey business require a less complex skill set than building a business from the ground up. Generally speaking, with the proper steps and enough research, turnkey business ventures also involve less overall risk.

By building off of a previous owner’s abilities and planning skills, the new owner of a turnkey business is able to turn a profit more quickly than a business owner who has built the company from nothing. In choosing to purchase a turnkey business, however, there are a number of issues to consider. Making a wise decision about which business to buy is one of the most important factors in determining how the business will perform. If chosen wisely, the company will likely be an ideal turnkey industry and make profits for the new owner immediately. If poorly chosen, however, the business can turn into a money pit, from which profits will be scarce, at best.

The method for choosing a business depends largely upon the type of turnkey business that the prospective owner wishes to buy. Choosing from the two broad categories of “franchise business model company” and “ready-to-start business model company” will help in learning about how to go about choosing a business wisely.

Regional Government Office

Whether in the county offices or in the city hall, getting in contact with a person who works in the field of coding in a specific locality can be the best way to understand the local nuances of how to properly license a new business. Employees at the local government level are well versed in the issues of local law, and will be able to provide contacts for the appropriate national, state or local agency that regulates pertinent areas.

Finding the correct contacts can be a shortcut to locating the pertinent forms and documents necessary to making a business legal. In some cases, an on-site inspection must also be completed before approval by a government agency. In this case, as in every case, it is not only important to hand in documents in a timely manner – scheduling a time for an inspection with the appropriate agency is equally important.

In purchasing a turnkey business, it is very likely that the business has applied for and received all the necessary permits and licenses previous to the changeover. However, it is absolutely essential that all information is up-to-date and that the new business owner’s name is transferred onto every permit and license. Even though a turnkey business is one of the simplest ways to acquire and run a small business, taking the time to make sure that the business is operating under legal guidelines will in the long term save time and money.

Tips for Finding Essential Licenses and Permits

Federal, State, and Local government requirements will at times overlap, but for the most part, the licenses and permits required by these three separate sections of government are entirely separate. The task of finding pertinent code and permit information can be daunting, but there are a number of resources that help make the process toward opening a legal and licensed business easier.

The Local Library

The local library is an indispensable resource for the would-be business owner. Most local libraries have listings of licenses required by their state. Additionally, there should be listings for the permits and code compliance required by the city and county.

In certain cases, the librarians have restricted access to the law books, but typically, information on local, state, and federal law is available in the reference section.

Permits

As previously mentioned, codes, which are sometimes referred to as ordinances, are not only applicable to the operation of businesses. They make up many of the laws and statutes regarding the health, safety and appearance of the entire local area. If a business that is seeking a local permit is compliant with these local ordinances, it is likely that the business will be able to obtain a permit and subsequently open without undue difficulty.

A permit is a legal document that authorizes a particular activity. While a zoning permit authorizes the person carrying the permit to use a piece of property in a specific way, a grading permit might authorize the person with the permit to change the contour of a specific piece of land. Permits are a method that the local government uses to keep track of their area of jurisdiction, and to monitor small business operations and code compliance.

Just a few of the many types of permits that may be required under local governmental law include (but are not limited to):

• Health
• Zoning
• Sales
• Construction
• Elevator
• Dig

Becoming compliant with local code seems to be relatively uncomplicated, but understanding the specific types of permits required in each individual jurisdiction is less straightforward. Research must be done on the types of permits necessary for the legal operation of a specific business.

Once thoroughly researched, the next step in operating a legal business is checking the company’s compliance with the code requirements. Resolving the noncompliant areas may be an expensive process, but it is crucial in obtaining the appropriate permits and avoiding fees later on in the process.

City and County Law Requirements

Just as federal law and state law must be adhered to in order to lawfully operate a business, so must local law be followed. City and County permits and licenses are almost always required in order to legally operate a business within the city or county limits.

City hall and the County office are valuable resources for helping the new business owner become familiar with the nuanced regulation of specific local areas and understand which specific licenses are essential to the local operation of a business.

Local licenses typically have a relatively low fee, and require a small number of forms to be filled out. Renewal of local licenses tends to occur annually.

Sales Tax Issues

If the prospective business is one which provides taxable services or products, it is necessary to obtain an EIN, or Employer Identification Number, from the State Department of Revenue in the state where the business operates.

As mentioned earlier, an EIN, or Employer Identification Number, is a special identification number that the Internal Revenue Service assigns to every entity that pays taxes in the United States. In order to receive an EIN, not only must an SS-4 form must be submitted. Additionally, it is required that the business obtains a special state license before receiving the EIN. This license is available through individual state franchise tax boards.

Staying Up to Code

Code requirements are a wide-ranging collection of laws that govern a vast array of procedures and conduct. These standards are in place to protect customers and clients, and oftentimes, the state requires that businesses keep licenses so that the state level government can keep track of the company’s code compatibility.

In the case of a restaurant, cleanliness and health code compliance can determine whether the location stays open for business or is shut down for code violation. Liquor licenses are also issued and renewed only if a business stays in compliance of state and local code.

Any small business owner knows that small code violations can mean major fines and revenue loss. Keeping in mind that laws and codes are not the same from state to state, it is essential to check with state agencies to determine the necessary protocol to obtain a license.

State Law Requirement for Small Businesses

Laws are vastly different across state borders, and requirements for small businesses will in turn vary depending upon the location of the small business. There are, however, some general rules to follow vis-à-vis state regulation and licensing.

State Certification

Depending upon the specific type of business, many states require business owners to hold licenses issued by the state that prove certification in a particular area of expertise, showing that the business is in fact legally allowed to perform the proffered services. State certification licenses show a certain level of education and training, and verify that these skills are recognized by the state.

The types of business that will need state certification can vary widely, so check with the state in which your prospective business is registered.

Just a few examples of some professions that typically require a state license:

• Real estate professionals
• Mechanics
• Building contractors
• Private medical practices
• Hair salons
• Law firms
• Auctioneers
• Funeral directors
• Private investigators
• Bill collectors
• Private security guards
• Appraisers
• Accountants
• Massage Therapists

Some states also require licenses based on the products being sold by a particular business. Lottery tickets, gasoline, firearms and liquor are just some of the many controlled items that necessitate a state license or certification.

State requirements can vastly different from federal requirements. At time much more stringent and at times surprisingly lenient, it is best to check to see if a particular business requires state certification of any sort before purchasing the company and opening for business.