In the real estate business, agents refer to a home that has been renovated recently as “turnkey.” A buyer can turn the key on the front door and start enjoying the home immediately. Equally, a turnkey house is one that can be rented out without much fuss, making it a valuable asset to the real estate investor.
Webster’s defines turnkey as “built, supplied, or installed complete and ready to operate.”
Just like a homeowner, building your business into a turnkey operation is one of the best ways to grow its value. Whether you want to raise money or sell your business—or just know that you could—a turnkey operation gives an acquirer confidence knowing that your business will thrive when you’re not there.
The best way to make your company turnkey is to create Standard Operating Procedures (download The Definitive Guide to Standard Operating Procedures) that your employees can follow to do their work.
Once shared, test the strength of your SOPs by stepping away from your operations to see how well your company functions without you. Then plug the holes in your processes, and take an even longer vacation. Keep extending your time away for longer periods until your business can function without you indefinitely.
How Ted & Arleen Got 16 Times EBITDA
Ted and Arleen Taveras built an insurance consultancy called Insurance Licensing Services of America (ILSA) with the goal of creating a valuable business by getting employees to do much of the work. With that goal in mind, they took three intentional steps:
- They shared financial results with their team and encouraged employees to think and act like owners when they spent money.
- They created video-based training for their team to follow their SOPs.
- Finally, in the ultimate test of how well ILSA would perform in their absence, the couple picked up and moved to Puerto Rico, leaving ILSA and its Texas-based employees to operate without them.
The results were impressive.
The ILSA team stepped up and performed like owners. The video SOPs gave team members direction on how to proceed on complicated files. The financial information allowed ILSA’s 55 employees to see where the money was going and to make smart financial decisions, and with Arleen and Ted out of the office, employees were forced to make decisions independently.
When Arleen and Ted were ready to sell ILSA, their received 12 acquisition offers and ultimately agreed to an all-cash offer of 16 times EBITDA. Ted and Arleen credit the turnkey nature of their business for being able to attract such a large, all-cash acquisition offer.
Like a piece of real estate ready to be enjoyed, your company will be worth more if an acquirer can see themselves running it without you. Make your business turnkey by empowering your employees with financial information, training them on your SOPs, and then leaving them alone to step up and perform independently. You’ll be well on your way to a valuable business.