September 10, 2016

Buy a Turnkey Business – Pros and Cons

a business street scene, with text overtop

There are some great advantages to purchasing a turnkey business. The following is a list of the advantages:

  1. Pre-existing product(s) or service(s) with a proven business model already in place, lowering your risk of failure (as apposed to a start-up).
  2. Established business relationships with supplier(s) and customer(s) making future sales easier to predict.
  3. Closer to true total costs known, so financing is easier obtain then for a start-up. A breaking-even point has already been established.
  4. Established system in place already. Previous owner has done all the setting up of bookkeeping, etc.
  5. Should employees be needed, they will come with the business, fully trained.
  6. Branding of business will already be in place, like business logo and reputation.
  7. You will be able to focus your attention to expanding the business once you own it, making it even more profitable.

The disadvantages of buying a turnkey business are as follows:

  1. A very large investment will be needed in order to purchase an existing or established business.
  2. Existing business may be in financial trouble. A thorough investigation and appraisal will be needed when considering purchasing any established business.
  3. You will need at LEAST a working knowledge of the type of business that you are consider to purchase. If you have no knowledge of wedding dresses then purchasing a bridal shop is NOT a good idea.
  4. Inventory might be outdated.
  5. You would be inheriting any and all staffing or employee problems if any exist.
  6. As buyer, you would be responsible for any and all unforeseen contingent liabilities. Example: unpaid taxes.

Lawyer Rich Sierra discusses Key Aspects of Buying an Existing Business

How to buy a business without losing your shirt – Part 1

How to buy a business without losing your shirt – Part 2

How to buy a business without losing your shirt – Part 3

For more in depth information on buying an established business in Canada: http://www.canadabusiness.ca/eng/page/2854/

Where to find established businesses for sale in Ontario, Canada: http://www.kijiji.ca/b-ontario/turnkey-business/k0l9004

What Other’s Have to Say:
10 Things to Look Out for When Buying a Business

 
Credits for Header: image by © Mtsue | Dreamstime.com – Quiet Downtown Street Photo

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Simon Crowe in Asia - May 22, 2017 Reply

Thank you Trish, this is really good advice.

A few years ago my brother bought a restaurant, of course he checked the accounts and all seemed well, but after he bought the business he lost his general manager due to a disagreement and my brother didn’t know how to run the place. He sold it last year but he’s lost a lot of money through that.

Why? Because he liked the idea of buying a restaurant business but has absolutely no experience whatsoever. A very expensive lesson.

What might look good on paper needs further investigation. Spend a few days with the business, meet the employees – these are a few things that you can do to help you make a decision whether to buy or not.

    Trish - May 22, 2017 Reply

    Hey Simon, sorry to learn that your brother paid such an expensive lesson. He has now gained business knowledge the hard way.

Mitch - May 30, 2017 Reply

Great information to think about when deciding to buy a traditional brick and mortar style business. I enjoyed watching the video training and this gave me a lot to think about.

I noticed that you provided some links for more information on business for sale in Canada. Do you have information for business for sale in other parts of the world?

Thanks,
Mitch

    Trish - May 30, 2017 Reply

    Hey Mitch, glad you found the information here helpful.

    It would be great if I could find a reliable source of businesses for sale around the world, but for now, I can only offer a reliable list of businesses for sale within Ontario, Canada … so, not even all of Canada.

    You might try searching the internet for your particular country and area, as you would be a much better judge as to whether a listing of businesses in your area are for real or not.

Phil - June 2, 2017 Reply

Hi there
I have looked at this review with both optimism and sceptisism and having read your pros and cons, I can see that it may not always seem like it looks from the outside.
We need to pay due diligence and always check out for ourselves the business idea and maybe get a second opinion.
Although that said, it would be great to buy a turnkey business, where all the hard work is already done and it is in profit.
I suspect we would pay a high price for that opportunity.
Cheers and thanks for a great review
Best wishes Phil Browne

    Trish - June 2, 2017 Reply

    Scepticism can be a good thing Phil.

    As for your suspecting that you would have to pay more for a turnkey business that is profiting, yes of course you would. Like anything else, the more inclusions the higher the cost.

    Now, how MUCH more you would need to pay would depend on the amount of researching you have done on the marketplace, and on the volatility of any turnkey business that you have chosen to bid on.

    Thanks for dropping by and commenting. Much appreciated.

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