A turnkey franchise was created for a new business owner to get into business as fast as possible, using an already existing business model. The franchisor will provide a turnkey franchise package that includes all the necessary information to operate a business immediately.
Turnkey franchises allow a business owner to have the best of both worlds. They can be their own boss but also receive assistance from the parent company and benefit from an established brand, comprehensive training, operating procedures, and ongoing support.
Although turnkey businesses make it much easier to start up and begin operating a business, there is no guarantee of success. Many factors will determine whether or not the owner of the business will succeed, including management skills, monitoring cash flow, hiring employees, and following the proven system of the franchisor.
This guide covers turnkey franchising, expected costs, how to evaluate opportunities, and key steps before investing in a franchise.
What Is a Turnkey Franchise?
The turnkey part of a turnkey franchise originates with what you call a turnkey property. A turnkey property has been so completely prepared for occupancy by a new tenant or buyer that they can literally go in and just turn the key, then open their doors for business.
In contrast to an unaffiliated small business, many turnkey franchises have pre-arranged processes for getting the business up and running as quickly as possible. As a result, the new owner does not need to spend months preparing each aspect of the business; rather, most of this work will be done for them.
Why Many Entrepreneurs Choose Turnkey Franchises
Turnkey franchises offer a proven model for entrepreneurs who prefer not to build a business from scratch.
The franchisor has already tested its systems for operations and branding in multiple markets. This gives franchise owners access to a proven system that may lower the risk compared to opening completely independent businesses.
Key Benefits of a Turnkey Franchise
In addition to the above benefits, franchises also offer other advantages. These include:
- Brand recognition
- Training
- Ongoing operational support
- Marketing assistance
- Access to vendors
- Guidance
Turnkey Franchise vs. Traditional Franchise
Both types of franchises operate using the franchise model; however, in terms of how the initial set-up occurs can be very different.
Traditional franchises require more hands-on involvement, including hiring contractors, buying equipment, leasing space, and managing local advertising.
A typical turnkey type of franchise opportunity will typically provide greater assistance and oversight from the franchisor regarding the early phase of setting up a new franchise.
Common Turnkey Franchise Support
Many franchisors offering turnkey solutions assist with:
- Location selection for the franchisee's business
- Marketing research for the market area around the selected location
- Setting up operational systems
- Implementing the training programs for the employees
- Supporting grand opening marketing efforts
The additional convenience provided by turnkey franchises can also lead to an increased initial investment compared to a traditional franchise model.
What’s Included in a Turnkey Franchise Package?
Investors are attracted to turnkey franchise opportunities because so many parts of the start-up process have been previously arranged.
While each franchise operation has its own unique characteristics, the majority of turnkey franchise package arrangements include multiple service elements.
Site Selection and Market Research
Where to locate can significantly impact how successful your business will be. Franchisors typically assist their prospective franchisees in performing market research before they approve a location for a new franchise.
Site Selection Factors
This process may include analyzing:
- Demographics of the population
- Traffic counts
- Competition in the area
- Demand by potential customers
- Levels of income
Franchise owners are assisted by parent companies during lease negotiations.
A good site can assist in building a large customer base more quickly than other sites and ultimately increase long-term cash flows.
Training and Operational Procedures
A comprehensive training program is another major benefit of the turnkey model.
What the Training Program Covers
Most franchisors provide training on:
- Daily operations
- Financial management
- Hiring employees (recruitment)
- Customer service
- Technology systems used by the franchise
- Marketing strategies used by the franchise
- Inventory management
The goal is to help new owners understand the proven business model and follow the franchisor’s operational procedures correctly.
Ongoing Support for Franchise Owners
Even investors with little prior experience can often learn how to manage operations effectively through:
- Ongoing coaching
- Field support
- HR support
- Support of marketing efforts
- Technology in software systems
- Consultation services related to operational aspects of the business
Equipment and Initial Inventory
Many turnkey businesses also include physical assets needed to begin operations immediately.
Common Equipment Included
Depending on the industry, this may include:
- Equipment
- Furniture
- Signage
- Technology systems
- Mobile units
- Preparation equipment for food
- Also included with many franchises is an initial inventory
For example, food trucks and mobile service businesses are often considered turnkey because they may arrive fully equipped and ready to operate.
Initial Investment and Startup Costs
Before you invest your money into a new business, you need to know how much of that money will be spent. The cost to start some types of franchises or small businesses can be as little as $10,000; other companies have startup costs over $500,000.
Common Startup Expenses
The initial investment often includes:
- Initial franchise fee
- Equipment purchases
- Lease deposits
- Build-out costs
- Technology systems
- Insurance
- Licenses and permits
- Initial inventory
- Marketing expenses
- Working capital
The initial franchise fee gives the franchise owner access to the franchisor’s systems, established brand, and support network.
Ongoing Royalty Fees and Expenses
Beyond startup costs, franchise owners should understand recurring financial obligations.
Typical Ongoing Expenses
The majority of franchisors require:
- Franchisee continuing royalty payment
- Payment into an advertising fund or cooperative
- Employee payroll
- Utilities
- Lease or rent
- Replenishment of inventory
- Business insurance
Even though franchises provide a proven system, owners still need strong financial management skills to maintain profitability.
Financing Options for Franchise Owners
Because startup costs can be high, many aspiring franchisees use financing options to fund their investment.
Popular Financing Options
Common financing sources include:
- SBA loans
- Bank financing
- Using personal savings
- Rolling over retirement funds
- Partnering with investors
- Lenders approved by franchise owners
- Why cash flow planning is important
Why Cash Flow Planning Matters
Before signing franchise agreements, investors should estimate:
- Monthly expense projections
- Revenue projections
- Profit margins
- The break-even point
- What amount of money do you need for cash in the first year
It is important to do this initial analysis as it can be difficult to manage cash flow in a new business, even if the company has been around for years.
Buying an Established Franchise Business
Some investors prefer buying an established business instead of opening a brand-new franchise location. The benefits of this approach are that you will be able to generate income immediately, there is an existing customer base, and operational processes are already in place.
Benefits of Buying an Established Business
Established franchises often come with trained staff, strong reviews, positive exposure, and a steady history of cash flow. When a buyer purchases a well-established business, they can expect to operate their new business using a proven model for success.
Reviewing Financial Performance
Before you purchase a franchise business, you will need to thoroughly investigate the financial history of that business as well as how it is performing financially.
Key Financial Areas to Review
Important areas to analyze include:
- Gross revenue trends
- Net profit margin
- Operating and payroll expenses
- Customer retention
- Marketing Effectiveness
Reviewing these numbers helps buyers understand the business’s profitability and long-term potential.
Understanding Item 19 in the FDD
The franchise disclosure document (FDD) will be a very valuable resource when performing your due diligence on an existing business you are interested in purchasing.
What Item 19 May Include
Item 19 often contains:
- Information about the revenue that can be expected from the business
- Information about the profitability of the business
- Representations about the financial performance of the business
Potential franchise owners should review this section carefully to determine whether the franchise opportunity aligns with their financial goals and investment expectations.
Choosing the Right Turnkey Franchise Opportunity
Not all franchises have been created equally. Not all franchises will be correct for each franchisee who invests in one. Before investing in a franchise, prospective franchisees need to assess their financial status, business needs, and personal lifestyle needs.
Popular Types of Turnkey Businesses
There are many types of turnkey franchise opportunities available today.
Examples of Good Businesses to Franchise
Popular industries include:
- Food trucks
- Cleaning services
- Fitness studios
- Home service companies
- Mobile units
- Retail stores
- Property management
- Rental income business
Each franchise model has different startup costs, operational requirements, and revenue potential.
Match the Business to Your Goals
If you can find a business opportunity where your business goal matches your personal interest, then it will be a better franchise for you.
Important Factors to Consider
Investors should consider:
- Income
- Time commitment
- Level of management involvement in the operation
- Industry experience
- Lifestyle
Some people want to actively manage operations every day, while others prefer semi-absentee ownership.
Understand the Biggest Challenges
Even successful franchise owners face obstacles.
Common Challenges for Franchise Owners
Some of the biggest challenges include:
- Employee retention and hiring
- Customer satisfaction
- Following the system provided by the franchisor to operate your franchise
- Maintaining profitable margins
- Stress related to daily operations
Franchises can help you understand how to run a business, but it does require work, time, decisions, and some degree of leadership.
Step-By-Step Checklist for New Franchise Owners
In order to purchase a franchise that is already turnkey, there are many things you have to do as an owner of the new business.
Step 1: Research Franchise Opportunities
Focus on key areas, start by comparing:
- Startup costs
- Demand in the industry
- The Reputation of each franchise
- Financial performance of each franchise
- Support systems
Conduct market research to evaluate customer demand in your area.
Step 2: Review the Financial Requirements
Estimate the full investment, understand:
- Startup costs
- Ongoing expenses
- The amount of working capital that will be required for the first year of operation.
- When you can expect to break even
- Your projected cash flow
Secure financing options early if needed.
Step 3: Read the Franchise Disclosure Document
Review important details, pay close attention to:
- the franchise fee
- Ongoing royalty fees
- territory rights
- your support obligations
- any financial performance representations made by the franchisor
Consider consulting legal or financial professionals if necessary.
Step 4: Speak With Franchise Owners
Ask about real experiences, contact existing franchisees, and ask about:
- Operations daily
- The profitability of the business
- How much ongoing support do they receive?
- The quality of training received by them
- Challenges they have encountered in operating the business
These are usually the most honest reviews of the business you will get
Step 5: Complete Training and Launch
Prepare for the grand opening. This stage may include:
- Hiring staff
- Setting up necessary technology
- Stocking inventory
- Finalizing marketing plans
- Preparing operational systems
FAQs
A turnkey franchise model is a business that has already been set up with many of the requirements needed to start immediately. The franchisor will provide much of the training, equipment, and operational systems required for the new owner to open their doors immediately.
Buying a turnkey business can be well worth the investment for those looking to reduce time spent in the initial startup phase and have ongoing support as well as an existing business model. Even with these benefits, it is still important to properly research due diligence and actively manage your new business.
The main difference between a turnkey franchise and a traditional franchise is that in a turnkey franchise model, the franchisor provides most or all of the initial setup needs of the new owner, whereas in a traditional franchise, the franchisee is typically responsible for the majority of the initial setup themselves.
A typical turnkey franchise package may include assistance for choosing a location, training, equipment, initial inventory, marketing materials, and the systems to operate the franchise.
It will help new franchisees find out what real operating costs are for that particular type of franchise, if the franchisors really do support them in their operation, how profitable they can expect to be, and what problems or issues most franchises experience.
Conclusion
A turnkey franchise can provide a faster and more organized path into business ownership for many new entrepreneurs. With a pre-existing model, you are able to start with less effort than if you were to create your own business model.
Although using a turnkey opportunity may make it easier to set up a business, there will still be work involved to operate it successfully. Success depends on your ability to manage operations, lead employees, and maintain the standards of the brand.
Before investing in a new venture, complete a full investigation of the potential investment. Discuss the potential investment with existing franchise owners and ensure all financial responsibilities are fully understood.
When selecting a franchise that will allow you to accomplish your objectives, you may create a long-term, successful, financially rewarding business. Thinking about starting your own turn-key operation? The world of franchising is very complex, and there’s no reason you should go through this process by yourself.
Contact FranchiseCoach Adam Goldman today for expert guidance and personalized recommendations to help you find the business that matches your vision for success.
