A turnkey franchise presents a compelling opportunity for both seasoned investors and aspiring entrepreneurs new to the franchise world.
Turnkey franchises offer veteran entrepreneurs and new franchisors a turnkey franchising model that provides a compelling investment opportunity.
It makes business ownership more accessible by providing new franchisors with support from the parent company, as well as a thoughtfully developed business plan to enhance financial stability.
This guide will discuss the major advantages of turnkey franchise opportunities, potential challenges you may encounter when evaluating these opportunities, and actionable tips that can help you determine if the franchise opportunity aligns with your long-term goals.
What is a Turnkey Franchise?
A “turnkey franchise” is one where a complete package of operations is provided by the franchisor. The typical items included in such packages include location (physical building), operating procedures, essential equipment and ongoing support.
Fact definition: A turnkey franchise represents a unique type of business model which enables an entrepreneur to start up their business right away since most of the required elements are already in place (location, equipment, etc.), and have been established through the franchisee’s initial investment.
The concept of “turning the key” illustrates how simple it is for a business owner to begin their new venture immediately. With a turnkey franchise, there will be certain start-up costs as well as continuing franchise fee obligations.
Examples of Turnkey Franchises
There are many types of turnkey franchises, but turn-key franchises can be found in virtually every type of industry — whether you have culinary skills, retail experience or fitness training:
- Food: McDonald’s, Subway
- Retail: The UPS Store, 7-Eleven
- Fitness: Anytime Fitness, Orange Theory
Some of these well-known brands illustrate some of the diversity of opportunities available on this franchise journey.
Are All Franchises Turnkey?
While most franchises come with a tried-and-proven business model, not all franchises are turnkey.
- Traditional franchise: Often requires the new owner to handle site selection, lease negotiation, and initial staffing.
- On the other hand, when a new franchisee purchases a turn-key franchise, The franchisor typically takes care of the majority of the operational work involved (i.e., building out the space and installing necessary equipment) so that it will be ready to operate from day one.
The primary difference is that while all turnkey franchises are franchises – not all franchises are turnkey.
Advantages of Turnkey Franchises
1. Proven Business Model
The trial-and-error phase is typically eliminated from turnkey businesses by having an established business model.
Fact: the typical failure rate in franchise businesses is significantly less than that of independent start-ups. Typically, this translates into a franchise failure rate of 20%, while start-up failure rates can reach as high as 90%.
2. Existing Customer Base and Established Brand Recognition
When buying into a franchise with an established name, customers know and have trusted; this is a tremendous advantage. By leveraging brand recognition and a proven brand, franchise owners can attract an existing customer base the moment they hit the grand opening.
3. Minimal Startup Time
Turnkey franchises allow for significant reductions in the start-up period because the groundwork has been completed. Because the foundational work is done by the franchisor, you can hit the ground running.
Fact: When purchasing a franchise, the franchisor typically completes all aspects of setting up your store (including selecting a location and leasing it), so you may begin operating your new business from day one.
4. Initial and Ongoing Support
New owners benefit from ongoing coaching and ongoing training. The operational support package will include continued training on how to operate the business systems and also train on marketing and employee policies.
Fact: A franchisor typically has negotiated contracts with its vendors and distributors, so that the owner can buy at wholesale prices or have a consistent flow of product through this network; something an independently owned business does not have.
5. Reduced Risk
The lower risk of a new business is greatly reduced when you invest in a turnkey franchise.
Fact: Many franchisors have developed good working relationships with banks (or other lending institutions) to assist their franchisees in obtaining funding, as franchising has a long history of being a stable investment.
Challenges to Consider
High Initial Investment
The majority of the time, when you decide on opening a turnkey franchise, there will be an initial large payment required at some point in your process (a lump sum). That includes the franchise fee, equipment and other startup costs. Although the initial investment may be expensive, many times, the expense is paid off with the well-known name and increased income.
Ongoing Fees and Royalties
You will have to make an ongoing payment each month as a franchise owner and send royalties back to the parent company regularly. The money that the franchisee pays for these purposes goes toward further developing and creating systems of support for the parent company so that they can assist their franchisees.
Limited Customization
Franchise agreements are intended to protect the brand identity and maintain uniformity among all locations. While this maintains brand standards, it may restrict individual creativity for the new owner.
Dependence on the Franchisor
In general, franchise owners depend on the parent company for a wide variety of reasons, including marketing services, operational assistance, etc. Thus, when selecting a franchise, it would be wise to choose one from a reputable franchisor who has been successful in your desired field.
Fair Price
An important consideration when considering purchasing a franchise is whether or not you are paying a reasonable price for the opportunity. Aspiring entrepreneurs should evaluate the financial records, real estate market terms, and existing franchise performance to confirm that the price reflects the actual recurring revenue potential.
Tips for Choosing Turnkey Franchising Opportunities
Research the Franchisor
Review the franchise disclosure document (FDD). Ensure the parent company has a proven track record and provides continuous support.
Determine if the parent company has an established reputation as well as a commitment to support its franchisees’ on-going operation of their respective businesses.
Review the Franchise Agreement
This is a legally binding separate company contract. Seek expert guidance to understand your rights regarding multiple revenue streams and territory.
Talk to Current Franchisees
Speak with a current owner to understand the daily business operations. Find out if the owner generates rental income from properties owned by them or if they rent their own property. Also, ask them if the level of continued support provided by the franchisor meets their needs.
Assess Financial Readiness
Run a break-even analysis. Ensure you have the financial stability to cover the initial investment and the startup phase before the business becomes profitable.
FAQs
It is a complete package where the foundational work is finished. You receive a proven business with operational procedures in place, allowing you to start operating immediately without needing prior experience.
It means that all of the basic groundwork has been completed; you are purchasing an existing business model with established operational practices already in place so you can begin operation as soon as possible. You do not need any previous experience to operate one of these franchises.
Often a smart move for aspiring entrepreneurs. While the lump sum payment is higher, the brand recognition and support systems significantly lower the failure rate compared to independent businesses.
Yes. For many prospective small-business owners, this may be an excellent choice. The initial outlay will certainly be higher than when you purchase your own business (independent), but by buying into a well-established franchise, you have significantly lowered the potential risk of failure.
What does this mean? A “turnkey” means that the work is already done for you. Therefore, when we say that a turnkey franchise reduces your risks, it is because it gives you the knowledge of how to run a successful business; you also have the benefit of having the name recognition (branding) with which consumers associate success.
Banks view franchised businesses in general as being less risky than non-franchised businesses. As such, many people find it much easier to get funding for their first franchise purchase.
Franchise models exist throughout nearly all industry sectors. Examples of turnkey franchise operations can be found within:
*Food: Consumer Goods & Food Service: i.e., McDonald’s and Subway
*Retail Services: i.e., The UPS Store and 7-11
*Fitness Services: i.e., Anytime Fitness and Orangetheory
If you prefer following a proven business model over building from scratch, and you value ongoing coaching, a turnkey operation is likely the right franchise for you.
Is a Turnkey Franchise Right for You?
Turnkey franchises are a great way to enter into business ownership with less stress, but you must still consider all of your options carefully before making any final decisions on how much money will be required from you in the initial investment and ongoing fees.
By conducting thorough due diligence and making an informed decision, you can determine if a turnkey franchise or even turnkey properties in the real estate market are the right venture for you
Connect with FranchiseCoach Adam Goldman today. He will help you discover high-potential turnkey business opportunities; help you understand the complexities of your franchise agreement and find the perfect venture for your lifestyle and goals.
Expert Tip: Investing in a turnkey franchise allows you to bypass the stressful setup phase, but remember that you are trading creative freedom for a proven track record and industry experience.
