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.