Turnkey businesses carry a reputation of being good investments, but are they really? Let me explain what it is and how these investments have risk and if you don’t know how to run one, it may end up being an expensive failure.
When you start a new, fresh business, typically that itself carries a lot of risk besides just the massive investment you put into it. There’s chances that it may not work, that you will have to owe money if things fail and so on.
But what if you could BUY an existing, successful running business from someone and just take it over and keep the “gears” running? That would technically minimize the risk and your investment since you’re already buying something that is proven to work, right?
Enter the concept of a turnkey business.
Here is what a turnkey business looks like:
Here is my definition of a turnkey business:
Simply put, it is the process of someone selling (or giving away, which may rarely happen in an inheritance situation) their business to someone to take over it completely. Sometimes they are also referred to as done for you (DFY) businesses. Here is an example (and it has the same risks too).
Typically, in these situations, you have 2 groups that exist here:
The seller, aka the one who is selling their business. They are likely doing it to make a huge buck out of it, but also maybe because they want to move onto another venture they have, or perhaps, they wish to retire and do not want to be involved with what they were doing before.
The buyer. As I said, there’s investors/buyers out there who do not want to go through the ordeal of starting a new venture and risking the hardships of figuring out how to run something successfully. They’d rather just pay a huge bundle to someone who already has experienced it and take over.
These types of exchanges happen a lot our world, but in this article, I want to talk about the benefits of it and risks involved. In theory this exchange that is happening is almost full proof, I mean why would someone consider it a risk to put money into something that’s already proven to work?
Well there’s reasons why you may want to re-consider (or consider it).
Examples of turnkey scenarios:
Say someone owns a supermarket for 50 years and wishes to retire. Things are running smoothly but they decide to sell the store for 1 million dollars, and so an investor comes along and buys it. The “key” is given to them to continue from where the previous owner left off.
Let us imagine someone invented a product that has been selling successfully, made a business out of it and it thrived as well, but they decide to move into other fields and ventures and do not wish to spend anymore time on what they already have. Well they sell the whole thing to someone for a big price to invest in something else and the other person happily buys an already well selling product.
The online world is NO different. Websites that make money are sold all the time. People make a website, it becomes successful, make a good fortune and they decide to make another, while selling the first. In this case, I personally know a lot since my area is centered around website and online businesses.
This page made well over $50k last year and if ever considered selling it, I’d probably never go for anything lower than $150k to represent a 3 year profit.
And there are case studies I can show you where people did decide to sell their website and made a lot of money in the process, but while that was a good scenario for the seller, if it was a good investment for the buyer is a different story (it depends on a lot of factors).
Before I move on, allow me to explain my alternative to turnkey businesses:
The pros of engaging in turnkey businesses (if it works out):
As a seller, you can make a fortune from one sale and pretty much live on that money for decades. Obviously you have to weigh if selling is the best option especially if what you created is making a stable income yearly. In that case, you may want to compare what selling it would do vs continuing to run it or having others run it for you to see which would make you the better income.
As a buyer, I would say it’s a “safe” investment. You’re buying something that is theoretically risk proof.
But here are some important cons (if it doesn’t work out):
For sellers, I have to go back briefly to the weighing part. If what you own is making you $100k every year, you could certainly sell it for $200k to even $500k and get a big check, but at the same time, what if you left things as they were, took a small pay cut, but hired people to do the work you were doing? Then you’d work less, make a bit less, but the money would still come in.
Let’s say you end up investing $50k in hiring people to handle the work for you and to keep things running, you’d make 50% less, but still end up earning an “easy” $50k yearly. Perhaps that pay cut is a safer bet/investment vs selling what you have and not having a plan B should the money you earned from the sale run out…
Now buyers themselves in my opinion run a bigger risk from these investments and here’s a few reasons why:
- You may not know who you’re buying from and end up making an investment that fails.
- Perhaps the seller was lying to you about the profits and you only figure this out post purchase.
- Perhaps economic conditions change after you make the purchase and things go slow or bad.
- Maybe when you buy the new business, you will have to rehire new people and take care of the paperwork. In short, you will have to re-align everything so things run well…
Perhaps for whatever reason things go really bad and your lack of experience in whatever business you purchased will only worsen things. The experience the previous owner had was what helped them rise to success, and if you don’t have that experience, you are risking a lot.
And as for risk, remember, you are putting in A LOT of money for a “safe bet”, but as I just pointed out, there are many holes in the concept of safe bets in general…
What is a safe investment?
This part of the article will be more applicable to those who wish to make an investment in something safer. My whole opinion after being involved in business for many years is that you need to invest in knowledge of how to grow a successful business, not necessarily buy one and if do, know how things work there because if and when things go bad, you as the new owner will have to protect their investment and fix things…
But in addition to that, I am typically someone who endorses investing very little and growing a business from scratch, especially if you are someone who is very, very tight on money.
I often find people who have little to no money to spend typically invest in turnkey related ventures and end up getting screwed VERY often, especially in the online marketing world. In fact, I think out of the all the turnkey opportunities dealing with online investments I’ve reviewed over the years, not a SINGLE one has gotten a recommendation from me.
I will say that online investments such as websites are FAR less expensive to invest in vs typical businesses and there are A LOT less issues to deal with on the former end than the latter.
- So if you can invest in something that actually costs little to start with, go with that.
- But at the same time, know what you’re buying and know how to fix it if things don’t go well (because they will). For example, if I buy an auto shop from someone, I’d prefer to know how to fix cars myself so I can hire the right people, pay them the right amount and fix things myself if need be. Otherwise, things will fail and I will lose the business. Whereas if I had experience, I could prevent that.
My final thoughts:
I’ve been building websites for many years and I will say that a few of them have been VERY successful (I have made many sales though, and here is my full report). Even if someone were to approach me and give me an offer to buy one, I wouldn’t do it because I personally see FAR more lucrative potential in keeping and growing it on my own.
Now if you are someone looking to buy, I would honestly recommend building your own website, it requires extremely LITTLE investment, but at the same time, learn how to build it:
For these things, you can turn what usually costs less than $50 to start up and build it into a limitless money machines. The only risk is the time you put in to learn and apply it. Plus this is the PERFECT starting point for those who can’t invest money into big opportunities.
The other beauty of an online business besides the massive amount of money you save is that you can pick out what you want the website to be about, so generally, if it’s going to be based on something you like, you will likely know more about the topic and I said, that itself is an insurance that you can fix things if they go wrong.
But my whole take on the turnkey topic is as I said, overall risky and typically more beneficial for the seller, on the monetary front. Buyers need to be careful with these things, very careful. Only if you have A LOT of money handy can you do the sort of thing where you spread investments out everywhere and see if it ends up being a successful venture.