I'm considering buying a super Un-sexy recession-resistant home services business with potential for high earnings.I'm projecting I could approximate my current comp in the first 1-2 years and then grow much higher. Of course there are no guarantees and if I don't succeed my resume will be tarnished. More importantly, I am the primary breadwinner for my family of 3.I've always wanted a company to call my own and I can eventually set up this business to run without me. Has anyone done this or considered this? Should I go for it or stay in my lane?
Trending Content
Career Resources
Sounds nice. But, you forget to mention the risks you may be facing.
Agree with Isaiah - this seems very risky considering you're supporting a family and I would be much more careful based on that detail. Unless you make very little now I would not count on your comp staying the same.
What about buying it and running it alongside your current job for a year, and then deciding? Even 6 months will let you know what the comp will look like.
Also, what is your experience? Can you go back to your industry in 6-8 months fairly easily if this doesn't work out?
Yes, my goal is to keep my job while I get my feet under me with the new business. Easier said than done of course… my fear is that I won’t have enough time to commit to both. I work remote but travel semi often.
However, I’ve analyzed the local competition in several segments and the one I’m looking at is 100% unsophisticated, poorly rated mom and pops that I think I can beat applying some basic business systems. (I live in a tier 3 city that has weak competition in certain niches)
It boils down to whether a) I can juggle both jobs b) If I’m correct about my projections. So yes the element of risk is definitely what I’m trying to grapple with
This is a good point. I used to work at a tech company and we could take between 1 - 27 months sabbatical. If his company had something like that, it might be wise to leave on a sabbatical and then just either stay at the new place or go back to the old place. Sort of like a career net. But, if you take a lot of time off, your former colleagues may have advanced while you might go back to the same role and title as before.
Or having a strong network of people that would give you a job easily is something to consider during this process. The more nets you have, the better. Especially as you have a family and have to protect them from risks.
I’ve been on the hunt for quite a while - several years but I guess about 8-9 months seriously. I had one under contract, but did not pass the accounting piece.
Im not sure how you expect to run the business while working a job.. if you have a remote job, I might just suggest you consider applying for another remote job. There is a whole community on Reddit called Overemployed.
If you buy too small a business, less financial risk, but there’s a higher likelihood that the owner/seller is more involved in the business.
But I guess it also depends on the type of business.
Great points. I’m actually looking at buying an existing franchise business, because many of the tedious functions are outsourced. Also, there is strong support with marketing and HR. However, it’s going to require a strong operator to get results and manage the day to day.
no offense but if you're gonna put a lot of money into this wouldn't you want yourself to be the strong operator?
Read HBR’s guide to “Buying a SMB” and then make a decision. Currently reading this book and it provides a lot to consider, ways to lower the risk, (creating a search fund), etc.
regardless, I don’t think it would destroy your resume.
Echo this, I'm also currently reading it.
Other books worth taking a look at are "Buy Then Build" by Debil, and "Search Funds & Entrepreneurial Acquisitions" by Simon.
Thanks to you both for the recommendations. Sound like interesting books.
I opened the thread and instinctively wondered by the OP hasn't considered launching a search fund to mitigate their personal risk.
Small business lender here in Southeast that primarily makes SBA loans to true small businesses (many of them start-ups).
Prefacing all of these comments with the caveat that if you are currently in PE as your profile suggests and have done well at it, then you're not dumb so don't read anything I'm saying as you're dumb.
Breaking down your comments and questions
1. The overwhelming reason that most small businesses fail is inadequate capitalization. If you're going to do this; be prepared to put money in before you take any out. I don't care what the price is or the terms or what the FDD says or anything. If you aren't prepared or able to put money into the business before you take any out, don't do it.
2. Your reputation won't be tarnished if you fail. Likely the opposite - you took a chance, tried your best, and learned a lot of things along the way. That's skill/experience not everyone else will have. Put it to use if it ends up like that.
3. You may be able to set this business up to run without you... but you should not EVER expect or plan to do that. Absentee owners are the other group of small businesses that reliably and consistently fail. My portfolio is 70% true start-ups and I will not do any deal for an absentee owner. Period. Like Palpatine said... use my knowledge, I beg you! Again, not to say you *can't* do it, but that should absolutely not be on your horizon until and unless you achieve "high earnings" by running it yourself and having intimate knowledge of every single aspect of the business.
4. Don't fall into the trap that a lot of small business owners make by thinking "well gosh, they have this thing and if only they'd do THIS or THAT, then they could 10x this thing easily! My margins will end up being double what they are earning now! This will be great!" Don't do it. It's tempting, I know! You know a lot from being in WSO-world and "high finance" and have seen people take these concepts and blow them up and become rich. There's no secret sauce to business, just being smart... right? Wrong. You should pull the Moody's or RMA statement studies for businesses in this NAICS code and revenue size and location and compare those aggregate data against what your potential business shows. Then compare them against what the FDD says you should expect based on other, similar businesses. If they are generally in line... make your decision based on THOSE results. Or at most, 120% of THOSE results. If you have not done it yet... you can't imagine how hard it is to scale a small business. Which, once again, is not to say you can't do it. It's just saying that Buffett says investing is simple; but not easy. And that comment is before even considering the fact you expect to keep your day job for some indeterminate period of time.
5. You can't juggle both jobs.
6. I don't know what kind of DD you've done on this franchise so far, but it reads like you're expecting to have very little in the way of administration to contend with. You should throttle back on that expectation. I don't know the details, but the franchise's name is NOT on the articles of organization. Unless you are using a strong PEO that will actually employ everyone; YOU and only YOU are the one responsible to the state and local government for being in compliance with the litany of red tape that comes with running a small business. And I can tell you that regardless of how much DD you've done: you have no idea how much there is. Don't underestimate this and how fast and how quickly you can get sideways with the local authorities who have the ability to put the screws to your business and who don't care if you're not actively involved day-to-day. Yes, the franchise has an active interest in supporting you... but its not that much. Seriously, DO NOT take this as lightly as it sounds like you are when you say "tedious functions are outsourced" and "there is strong support with... HR." Maybe you've done a bunch of work and really know this stuff. I am here to tell you most people that do this do not know this stuff and learn the hard way. Oh, and that unsophisticated competition you mentioned? They'll be the first ones to call the authorities on you if they feel threatened and can't compete with your "business systems".
7. Don't put your family through this trial if you don't honestly think you can handle it from a financial strain and time investment perspective. Listen to @famejranc and understand that if you are not that strong operator or you're unwilling to become that strong operator; this really isn't for you.
Not intending to be discouraging, but I see this every day. You may be the outlier. My two cents. Good luck either way.
What are the examples of you see where it works? With the capital requirements to get a franchise, let alone have one and support it through the thin periods, I dont know how anyone can have that money unless inheritence. It's not like theres a slew of former Docs or bankers in bum fuck Nebraska willing to pour $2,000,000 into a franchise yet they are there and they are successful
Which examples? Absentee owners? Inadequately capitalized businesses?
Assuming the former, you really don't. This is not to say such things don't exist (they do) but is truly an established company that is already doing very well with involved ownership/management where the owners may be looking to sell and the buyers just want an investment BUT the difference is the management is deeply invested through various incentives. Absent that, if you think you're going to get some "General Manager" to run the place for you for a decent salary while you check in via phone and provide your expert advice and guidance from afar then I've got the oceanfront property in Arizona to sell you. Great bargain. In the small business realm scale more than anything else is what makes a difference. OP's business sounds like a husband/wife type operation with maybe a couple of hourly people that get system support from the franchise to get SEO jobs sourced to them and some referrals to 3rd party vendors for payroll processing and prefab HR manuals. That's my read from afar. Could be wrong.
Assuming the latter, you see a lot of this too. It really doesn't matter how good they are. Think the understudy chef at a restaurant ready to break out on their own. Or the guy who's been the "strong operator" that OP mentioned and who's tired and earning profits for the absentee owner's newest sports car. I'll loan money to *that* guy all day long. Even if he's got bankruptcy. Or a <600 credit score. #truestories. You know the hustlers when you see them. But, a single hiccup can still put them under in a month if they don't have adequate cash. But if everything goes right the hustlers are just as often successful. Luck matters.
Re: capital requirements for a franchise... which ones? If you're talking a Buffalo Wild Wings or something similar, yeah.... you do have to have a bunch of cash up front. They don't want cowboys hurting their brand value and reputation.
But if you lookup the SBA's franchise directory it is two hundred and two (202) pages long. So it's not like BWW and Dairy Queen are the only franchises out there. I can assure you there are countless ones we don't even know about and they don't require "doctor money" to buy or start-up.
Don't have that kind of cash? Get a HELOC and use it as down payment.
Not willing to do that? Then why on earth should I have any confidence in you to run that business?
Don't have enough equity in the house for the HELOC to cover the down payment? Go get a gift from friends or family. Or a loan from friends and family.
Can't get it from friends or family? Is it because they don't have it or won't lend it to you?
If friends or family don't have it but they'd lend it to you if they did... prove it. Get them to loan you something.
Prove to me you've pulled every lever at your disposal and if I believe you can execute on the business plan and you've got everything you own invested in this venture... OK. I'm sold. Forget the down payment. Let's get this bread.
When reading the responses you get on this form, remember that WSO and finance naturally select for risk averse individuals who did “all the right stuff” in life and followed the straight and narrow.
I agree with the general sentiment but I don't think it applies much here. If OP were asking whether he should stick it out another year in IB vs. join his friend's new $10M Series A startup as a strategic finance VP and people were telling him to stay in IB and that "startups are risky," I'd agree that OP should tune those voices out slightly. But he's asking if he should give up a seat in PE (which based on prior posts apparently was awarded generous carry ~4 years ago) to buy a franchise with all sorts of wobbly assumptions (e.g., 100% outsourced back-office by virtue of being a franchise [my read on how it was mentioned, might be wrong], being able to return to his income in 1-2 years, becoming an absentee owner).
If buying a single business and turning a 3x dog into a 6x champion was as straight forward as adding a CRM and hiring a few more salespeople, most of us wouldn't be working for others in PE. People are just cautioning OP to double check his assumptions.
How are you planning on financing the purchase of the business? That will obviously change the risk profile for you if you are dumping most of your savings into it or getting an SBA loan (which requires a personal guarantee) vs. raising some friends & family money. Depending on the deal size, I've seen that there is a community of "entrepreneur through acquisition" folks that like putting money in other people's deals. I've looked at a few of these deals myself.
Another risk that was not mentioned above is the just the nature of the size of these businesses can cause things to go upside down quickly because there is little diversity etc. If it's a single location retail franchise business and road construction causes a drop in traffic, then all of a sudden revenue falls off a cliff and there are no other revenue streams to support the business. Just an example to show how you have to think a little differently when diligencing these businesses.
You say downthread that you'll hire a "strong operator." What exactly is your plan here? You're not going to make any money as a passive owner - if it was that easy, someone else would have come in already and done it. Why do you think you will succeed here? What are you bringing to the table that anyone else isn't? You're claiming you'll work two full time jobs... are there enough hours in the week for that? Is your family okay with you basically disappearing for two years while you spend 80-100 hours a week on your two jobs?
I see this a lot on this site, "oh I'll buy a small business and then I'll make my own hours and make tons of money without being in this 70 hour a week Wall Street rat race!" That isn't how it works. Growing a business takes a ton of time and work, and luck to boot. You don't just step into a performing company and then teach people how to properly use Excel and suddenly you profit. There is so little actual understanding of what goes into entrepreneurship, and the answer always seems to be "I'll hire someone.'
If you are outsourcing all your needs, you will lose money. Full stop. You have to self-perform somewhere. Otherwise, everyone would be starting all these random businesses and hiring people to do all the work and then relaxing in the Caribbean.
Yes to all of this.
Agreed. Also, if the desire is to find a strong operator - good luck. This will take a lot of interviews and trust in the person to make the right decisions for you.
Hey man, noticed some people have already mentioned the HBR guide to buying a small business and some other books. I'd also suggest hopping on some calls with searchers, usually they're pretty happy to chat and give you a pretty transparent overview of their process. You could contact your B schools ETA club if they have one, or hop on searchfunder and find some people that way (or just search on LinkedIn). There are also some good podcasts - Acquiring Minds on spotify is one of my favorites.
I have been serving as an advisor/board member for a friend’s search fund which is along the lines of what you are thinking of doing.
This is by no means a bad idea. But you should know that your finance background doesn’t necessarily mean you’d be a good business owner. Actually owning and operating a business is different than being in PE. This isn’t to say that you’d be bad at or it or that you shouldn’t do it. You just need to know what you are considering is a pretty different thing to what you have done in the past.
With all that being said, as a general idea, I think you should do it.
A good friend of mine from my banking years has been running his business for probably a decade now after about 6-7 years into his IB/PE career. The very definition of an unsexy industrial services type business. He is quite smart and hardworking and the business has grown, but as I understand it — he is still well entrenched in the business and is constantly dealing with ‘people’ issues. And when I say people issues, I don’t mean ‘new employee Jimmy is upset that he has inadequate training’ or ‘Bobby is demanding a promotion’ …. I mean “Team Leader A is back in rehab and won’t be able to work his shift this week.” My friend is a very level headed guy though so he is well-equipped to deal with these sorts of issues.
So I’ll echo some of Midas’ comments above — prepare to roll up your sleeves and be hands on for many, many years.
Don't buy some unscalable localized POS SMB, it's a waste of your time if you're in PE.
Do it properly and work with a firm that specializes in funding search funds. They'll give you a salary while you search.
Aim for something with $3m+ in EBITDA. Your skills in PE are worthless for running a business that is smaller.
It is just as much work to acquire and run a small business as it is a large business. Go big.
The only reason people go small is because they have a shitty resume and are unable to raise capital. If you're in PE, this won't be a problem for you.
Having done it many many times, I can not overstate how unenjoyable running a small business with under ~$2m - $3m in EBITDA is. You can't afford good talent, so you're stuck working with idiots, and it is really depressing.
BTW if you go big there are a lot of other benefits like no PG as larger deals are too big for 7A SBA $.
So from what you're saying, it sounds like the bigger the business, the less you deal with stupid people? Is this just speaking in terms of people you hire or does it also apply to clients at a larger vs smaller business?
No, there are just as many if not more stupid people in large businesses. It is just that you interact with them less often.
I also fundamentally disagree with this idea that PE skills are not applicable for smaller companeis. If you are buying a wage replacement business, then you aren't getting out of the rat race. Back to my previous point, I am buying/taking over small laundromats currently. I would bet 99% of people here would think this is a business that can't possibly be transitioned into a larger business, sold to a PE fund, while adding 2x to the multiple over what I am acquiring at. I will just assure you now, I am going to get way more than a 2x higher multiple.
As someone who knows people who run businesses under the $2m threshold - the employees and talents you are bringing in aren't the brightest. I would agree with m_1, go as big as you can go.
Non officiis similique quisquam assumenda magnam. Et eveniet dolorem necessitatibus velit quia unde cumque dolores. Rem sed quaerat deserunt error sed minima provident.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Est id atque facere eos voluptate. Optio totam veniam ducimus modi omnis. Ducimus non fugiat aut adipisci rem veniam assumenda. Veritatis temporibus soluta quisquam perferendis autem. Cum rerum sit earum ut sint omnis. Excepturi est consequuntur eos dicta et a in. Id harum enim et in iure eos.