In transactions like these, the seller agrees to put up the plant or business, with his own financing and does not collect anything from the buyer. He (the seller) is guaranteed to be paid by the buyer upon delivery of the fully operational installation. This guarantee may come in the form of a Letter of Credit or bank guarantee opened by the buyer in favor of the seller or the buyer keeps his money on escrow with the condition of the turnkey agreement.

Applied to franchises, turnkey operations means just the same. If you buy a franchise under this agreement, it means that you will pay the seller upon the completion of the project.

Please note however that turnkey agreements are very complicated because of uncertainties on both sides. The seller has to protect himself to be able to collect upon delivery while the buyer has to make sure that he is not buying a "lemon". This gets the financial and the legal institutions involved because everyone wants to protect him or herself.

In a turnkey operation, the seller assures the buyer that he is capable of building a project with his own financing and technical capabilities. Companies normally offer big projects on Turnkey operations. Offering turnkey agreements give the seller an edge over competing companies who does not have financing support from banks and those who may need staggered payment terms like down payments and so much percent after so much percentage of completion of the project.

The same thing applies for turnkey operations in buying an existing business. You pay the seller after all your conditions are fully satisfied.