High-rise offices, pinstriped suits, comped dinners, and bonuses at every turn of the calendar. According to everyone in my outer circle, I had it made. I was living the NYC finance bro high life. Office in Midtown and comp higher than I had ever dreamed (low 6 figures, not that crazy). Though, little did everyone else know, my plan was never to be a “career-track” private equity superstar. For that matter, I wasn’t even that good of an employee. If I had to guess, I probably would’ve been labeled “bottom” or “mid-bucket”. Not because I didn’t know what I was doing; I could out-model and out-hustle anybody in the office. I just honestly didn’t care. I was last one in the office in the morning and first to leave in the evening. Maximizing work from home days too. My mindset was always: “what do I get in return?” If I commit to working extra hard and sucking up to the big wigs, what’s in it for me? The answer: quite literally nothing outside of a glowing mid-year review. Potentially, a few extra thousand bucks come February when our annual bonuses roll around, but was it worth it? Where was the upside in all of this? My compensation, bonus, benefits, trajectory, all 99% fixed. Set in stone. The risk / reward, or better put, time in / money out, wasn’t cutting it for me.
I wanted to be an entrepreneur. A Shark Tank investor. On the Forbes billionaires list. What did those guys and gals do to allow them to fly on a private jet? 95% of the time it was one of two paths: i) starting a business, or ii) buying a business. Most importantly, having ownership. And so it began; the never-ending spin cycle in my brain of opportunistic ideas for me to take on as a new sole proprietor. Ditch the old office job and pop open the garage door to start the next Apple. So, what kind of business could I start? It’s not like I’m Liam Neeson and have a very particular set of skills. I’m a young guy who’s hungry for more, for some skin in the game. The businesses everyone kept talking about in private equity at the time, and likely still at the time of this writing, was service-based businesses. The “unsexy” industries. Think of plumbing, HVAC, cleaning, waste removal, electrical, etc. To me, it totally made sense. I didn’t have to build the next Facebook or create a new microchip; I could start a simple service business. Learn an easy trade and become a guy with a truck. Scale over time. I was confident it could work.
As I started to research service industries, ownership routes, financing, etc., I ended up stumbling across the notion of buying a business. My first thought was, “don’t you need to have millions of dollars or be a private equity firm to buy businesses?” But the more I investigated it, there were realistic paths to business ownership using only $30-$80k of my own money. For example, using seller financing, a much more common practice in business buying where the seller of the business holds a note and gets paid interest over time in exchange for the keys to the company. Or the US government’s SBA program, where they’ll loan you up to 90% of the purchase price. Luckily, I had lived below my means during my time in banking and finance and had saved up just enough of a nest egg to purchase a respectable business. I assumed this would be my way out of the finance world, an escape from Alcatraz so to speak. Running a business couldn’t be all that difficult in these sorts of industries; there are plenty of mom and pops out there getting by just fine, I thought. I figured I’d learn as I go.
A few months later, I bought a small landscaping business, committing ~$70,000 out of pocket using a mix of the previously mentioned creative financing strategies. 100% equity and 100% of the upside. Here we go, my ticket to freedom. The first 90 days post-acquisition were hectic to say the least. Transferring data, appealing to employees (even speaking Spanish), meeting customers, establishing systems and processes, legal hurdles, accounting, payroll, HR and even coaxing the all too attached previous owners out. Somehow, we made it through the initial noise mostly unscathed. I quickly came to find out I knew nothing about running a business. I’ll caveat with the fact that I bought an owner-operated business, or in other words, a business fully run by the prior owners. But the reality of where I sat now didn’t really start to hit me until about 6-7 months in. The ugly truth was that I was buried in operations, staff, pressure, even loneliness at times. I started asking myself, “was this the right business?”, “should I have partnered with someone?”, “am I doing the right thing?” The benefit to buying a business was the immediate cash flow. So, the first check I got, which was for $22,000, I nearly laughed I smiled so big. However, the downside was that I took the ropes of a sailboat when I didn’t know how to sail and the wind was strong.
The debt I had on the business started to eat away at our cash flow, and because I was new to managing customer relationships, crews, hiring processes, capex, and of course landscaping best practices, one by one customers started to fall off. It was spring of the next year, our peak season, and my accountant told me we were losing money. All that hard work for nothing. Just like my prior job, I found myself working in an office every day, building budgets and PNLs, and staying up late to play catch up. The cherry on top was that after making ends meet, I couldn’t afford to pay myself anything. I went 16 months without income and only had a few thousand bucks left in my savings. I didn’t escape the system, I had just built a smaller, riskier one around myself.
My freedom didn’t come when I quit my cushy corporate job. And it didn’t come at the closing table of business purchase. If I had to go back and do it all over again, I would bring in more professional 3rd parties for opinions, valuations, accounting reviews, and industry advice. Also, if I could experience the industry for a year beforehand, working really any sort of relevant job, I’d jump at the opportunity. Learning while getting paid is an uncommonly spoken about weapon. Would’ve saved me a year of blowing through my hard-earned savings. I’d also use less debt, which would probably mean buying a smaller business or saving more money in advance. Leverage is a double-edged sword. Cash flow should be your #1 goal.
My options now, 16 months in, are either to sell the business or continue turning the ship around. Both are enticing options for vastly different reasons. Regardless, safe to say, I learned quite a bit since my days in the analyst bullpen. One thing’s for sure, buying a business taught me what freedom really costs, none of which has monetary value. Freedom is found in who you become when you commit to something. It’s the compounding effect of obsession. Freedom doesn’t have to be a one-track path either. Maybe the business works out, maybe it doesn’t. The endless pursuit of financial independence is what drives me. There’s a Vince Lombardi quote that says, “there’s no such thing as perfection. But, in striving for perfection, we can achieve excellence.” Taking the liberty to modify the tail end of the Lombardi quote and apply it to my own situation: in striving for a private jet, we can achieve financial freedom.
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Based on the most helpful WSO content, your story resonates with many who have transitioned from finance to entrepreneurship, particularly in buying small businesses. Here are some key takeaways and advice that align with your experience:
Preparation is Key: Many WSO threads emphasize the importance of due diligence before buying a business. This includes:
Leverage with Caution: Debt can be a double-edged sword, as you've experienced. WSO contributors often recommend minimizing leverage, even if it means starting smaller. Cash flow should always be the primary focus, as it ensures sustainability and reduces financial stress.
Owner-Operated Businesses Require Transition Planning: Buying an owner-operated business often means inheriting a structure heavily reliant on the previous owner. WSO threads suggest:
The Reality of Operations: Running a business, especially in service industries, is far from glamorous. It involves managing employees, customer relationships, and day-to-day operations. Many WSO users highlight the importance of having a strong management team or hiring experienced operators to handle these aspects.
Freedom Redefined: Your realization that freedom comes from commitment and growth, not just financial independence, aligns with the entrepreneurial mindset discussed on WSO. The journey is as much about personal development as it is about financial success.
Next Steps: Whether you decide to sell or turn the business around, both options have merit. If you choose to sell, ensure the business is in a stable position to maximize its value. If you decide to continue, consider bringing in experienced advisors or partners to help navigate the challenges.
Your story is a testament to the grit and resilience required in entrepreneurship. As you continue your journey, remember that the lessons learned are as valuable as the financial outcomes. Keep striving for excellence, and best of luck with your next steps!
Sources: Why You Should Launch a Startup Instead of Going to the Buyside, Real Talk - do you think buy and build strategies work, Value Buy-out vs Growth Buy-out Discussion from Associate Perspective, Personally Buying a Small Business - Quitting the Rat Race, Knowledge Sharing: Corporate Development / M&A
Working for a HoldCo / Transacted Searcher for a year is extremely under discussed. While a discount to high finance companies, you save yourself a lot of time and learn a huge amount. Importantly, you will also position yourself to encounter off market transactions in your employers network. Prevents you from being in a position where you’re effectively buying a job
Damn bro that sounds like a tough situation. I am very familiar with landscaping and that business, but would never want to be an owner in that industry. Good luck with the choices ahead.
I have one friend who went to Princeton, HBS, and was in PE. He loved to travel and wanted to help people have great experiences and bought a travel company years ago and seems to be doing well and loving it. Also, his employees are different that those of the labor type landscaping roles or from the service industry, which I feel are two industries that you have a lot of high turnover and difficulty to retain top loyal talent for these low paying positions.
Since you've already put into work to mold this company, maybe you could sell off some equity and possibly be more of a passive investor so that you can find something you love to do and get excited to wake up in the morning for.
That’s the goal and now my longer term view. Realized pretty quickly it’s not just about the money, upside, notoriety. You’ve gotta do something you love, so that you can get out of bed every day with purpose and motivation to work (even though it may not even feel like work to you). Learning by trying things I guess and narrowing the scope from there. Definitely want to reiterate that buying a business isn’t all rainbows and butterflies like many of the influencers preaching about this topic like to suggest.
What kind of travel company? Like a travel planning company? As someone who loves traveling, this really intrigues me!
"Lil bit of this, lil bit of that" ahh post
Ladies, liquor, and leverage
I could've told you from your purchase price that this wasnt going to work at your price point you were basically buying a job. At a higher price point their is more systems in place for it to be run by itself.
Two things:
1. You run into these issues way more when buying a business instead of starting one. I'm a full-time entrepreneur now and started my company, and because of that, I know every little facet of the business like the back of my hand. If you build from the very beginning, you become an expert very quickly.
2. You bought the wrong business. These are a dime a dozen and like the guy below said, service workers are a real piece of work to manage.
Starting a business is probably the way to go for the reasons you mentioned. Dealing with what the sellers left behind has been brutal (very old company, no reinvestment, poorly managed properties and equipment, etc). The only downside to starting a business is of course getting it off the ground / no cash flow day one.
Definitely with you on that. It’s not easy. But also, going from 0 -> 1 was the most fun part IMO. I’m still not at scale to know about running a more mature business but doing that super creative initial stuff was really interesting imo.
I'm very curious to hear why you decided on a landscape business and how much legwork you did researching this industry prior to purchasing the business. Have you ever done any landscape work for your own house before? Planted a flowerbed? Laid down some sod? Mulch? Dug a hole? Have you ever even hired a landscaper?
Also, did you ever consider what types of employees you might be working with i.e. ex cons and people who generally may not be the most reliable?
Did you ever consider the seasonality of the landscaping business? Unless you live in a state that is warm year round, you basically don't eat in the winters. Also, unlike a plumbing or electrician business, landscaping does not require any licenses or schooling. There are essentially no barriers to entry other than some heavy equipment.
"I would bring in more professional 3rd parties for opinions, valuations, accounting reviews, and industry advice"
How would this have helped? Do you think maybe the primary reason you failed is a little too much hubris? You're trying to bring your IB/PE background to a landscaping business. You honestly think bringing in Deloitte to audit the financials, Goldman to value the business, and McKinsey for industry advice was what was needed? Not... you know...some landscaping experience?
"Also, if I could experience the industry for a year beforehand, working really any sort of relevant job, I’d jump at the opportunity"
Hubris and Dunning-Kruger Effect. The family you bought the business from likely spent years building this business and you think 1 year working in landscaping would be enough to take over?
Look, running a business is far from easy, but buying a business you literally know nothing about is just stupid
Landscaping in general is tough, there’s the good recurring revenue (mowing lawns, clean up leaves, HOA contracts or other commercial work) and then the project based work. A mostly recurring business, may not be bad, but the margins appear crappy at least where I live, my half acre is $60 to mow/edge/trim and there’s a cap on pricing because there is always a “guy with a truck” willing to undercut.
I talk to the landscaper and he always says labor is the toughest part. It’s hard to find reliable people at $15 an hour to do very tough physical labor and there’s a seasonal aspect too.
It's not just that it's a tough business. It's that OP jumped head first and bought a business he knew absolutely nothing about. Imagine buying a software startup and not knowing how to code. The whole thought process made no sense.
Haha damn you held back no punches
My intent is honestly not to rip into the guy, but I do think that his post and assessment is a bit intellectually dishonest. Starting and operating any business is very difficult and risky, but it's one thing to spend years researching/working in an industry, starting your own business in that indusry, and failing vs blindly buying a random business. A lot of people on this forum seriously consider the entrepreneurship path and posts like these may sway their decision, which is fine, but they need to understand the real reason OP failed.
What is the current interest rate on your loans?, SOFR+300 ?
Wall Street prime + 2.50%
I did the classic IB > PE as well and am going down the path of business acquisition (currently searching).
You bring up some super interesting points in this post. One of the things I’ve struggled with in my search is that if you go too down market size wise (assuming you bought a sub $1mm biz if you only put $70k down) the cash flow numbers are difficult. What I mean by that is if you want to take a ~$100k salary, that’s essentially a fixed expense so having scale upfront is huge. Usually the old owner was the manager/operator so you have to take on that role as you can’t really afford to pay someone to. You’re essentially just buying a job + enough cash flow to service the debt if things go well. These businesses also tend to be way less structured as you mention - no CRM, no accounting systems, a couple of minimum wage employees.
You also can never acquire a HVAC or plumbing asset of this size as usually the owner is the sole license owner and there’s a huge replacement cost. I looked at a $2mm HVAC biz where you’d have to bump the #2s salary by $75k to convince him to become the primary license holder, which would cut the $500k CF to $425k on day one. A strategic would have a much easier time doing that deal.
The problem is that if you go up market, it’s harder to get lenders to lend to you as an individual and valuations go up as you start competing with small search funds. Anecdotally, one of my old VPs who was incredibly sharp is also looking for deals in NYC (where I’m looking) above $1mm. These guys are also looking for the businesses with 1) managers so they don’t have to be managing minimum wage employees and 2) in industries with higher barriers to entry, and are willing to pay premiums for them. My friend paid ~5x for his biz which is a premium for what most assets trade at at this level (usually in the ~3x range). I want to do a deal entirely myself to retain 100% of the equity (the entire point of doing this) but it’s hard to pay above 3x (generally about the max to be able to meet your debt service) unless you’re putting in more equity and therefore willing to take outside investors.
I invested in another services business that has turned out to be a bit of a nightmare for similar reasons you stated. I didn’t do/pay for thorough diligence upfront and jumped the gun on a crappy asset with a sub-par operating partner. Ultimately I think it will turn out okay as I’ve gotten a lot more involved in the day to day and am turning things around, but it’s been a scary (thought enlightening) experience on the stress and sleepless nights that come with making the wrong. Luckily I didn’t use any debt so if the biz goes belly up I’m just out the money I put in up front.
As a result of this experience, I’ve been spending a lot of time searching for an A (not a B) asset, but because of the other things I talked about I’ve realized it’s very difficult. Either go down market and hope you can really grow the biz in the first year to make up for the fixed cost of your salary/escape just cash flowing enough to service your debt, or try to compete with more sophisticated buyers and pay a big premium for a better asset. In 2-3 months of searching I’ve seen 3-4 assets that I would actually consider buying, and ultimately let them go for different reasons (e.g., industry, location).
We’ll see what I end up buying and if I end up in a similar place as you a year from now. Thanks for your post though, very interesting as someone going down the same path.
Agree with your thoughts on size, CF, premiums, etc. And if I knew this 2-3 months into my search, maybe it could’ve worked out a little better. I’ve heard some awesome success stories with ETA, and I’ve heard stories much worse than mine (lawsuits, bankruptcy, etc). So narrowing in on what’s non-negotiable in a deal and knowing what could break it well in advance is helpful
It took me over 14 months of searching to close on a deal. There was some search exhaustion kicking in at the end which might’ve coaxed me into a slightly worse deal. Plus, I switched mid-search to only look geographically which I now regret (the assets where I was looking had higher multiples and less growth on average than other booming markets)
I’d recommend fighting for an “A” asset against the sophisticated buyers and hope you get lucky. Reach out as soon as it hits the market, pay the premium, argue you’ll treat the business better than someone else, etc. Key things are i) to avoid buying a job (like what I did) - leaving PE probably means you don’t like your office job that much, so don’t lock yourself into a different one that pays less, and ii) don’t over leverage. I’d argue the 90% LTV from the SBA is too high for any business. There’s working capital, receivables you might have to buy, inventory, and other initial ownership costs that will likely drive debt / liabilities even higher post-close.
Worth mentioning there are extremely rare, small, non-owner dependent businesses out there. I got outbid on the few I saw unfortunately. But they do exist.
Good luck out there though man, hope all works out.
People still wear pin-striped suits? I'm so out of touch.
Yes but it has shifted from white thick stripes in the 90s and 2000s to thin stripes sometimes in less gaudy stripe colors like dark blue on a black suit or blue suit.
Sorry to hear about things going sideways. This is the reality of entrepreneurship, it feels like you "fail upwards" for your whole career. I was just thinking about the main business I spend most of my time in today, and it has maybe only felt "good" for 10% - 15% of the time and things have gone "well" relatively speaking.
It's also your first business so you shouldn't feel bad. A lot of entrepreneurs have to try 3 - 5 times before they find something that works.
You have to grind through things...and it probably won't feel great but eventually it will work out. Most of my friends that stuck to entrepreneurship and didn't quit are making much more than we otherwise could. I know I fall into that boat lol...
Good luck and don't forget, a lot of entrepreneurship is tied to LUCK. Think of a macro catalyst like COVID.
If you bought something positively impacted by COVID demand spikes like a lot of consumer...you would have made a ton of money even if you're an idiot.
If you bought something negatively impacted by COVID...then you would have lost a lot of money even with 300 IQ.
So don't let the outcome make you feel bad. Easier said than done of course, but don't forget a lot of successful outcomes are being in the right place at the right time but you must play the game to get lucky. Most of my friends with 9 or 10 figure net worths are not any smarter than those with low 8 for ex. Some have just fallen into amazing categories.
Here’s an alternative perspective, my first company I co founded was a brick n mortar, service based business with $2.3MM SBA loan. It was a kind of business that was predominantly run by immigrant Filipinos and Romanians, in a different state from where I lived. Business is good going into our 8th year, but I think about this whenever I hear folks on here talking about owning a trades business:
What are your opportunity costs?
For the first generation immigrant with education that doesn’t translate to a good job in the US, this business is perhaps their highest economic attainment.
For someone in high finance, I think the types of businesses to operate or attainable positions as a W2, have a higher opportunity. Now, if you hate corporate and just don’t fill fulfilled, then throw the opportunity cost analysis out the window.
From the perspective of the immigrant, it is a pathway to survive and perhaps thrive that others in their community had done. Might not have necessarily been for the altruistic reasons some of us monkeys dream about while working in finance.
So, I think pick a field you can get obsessed about, is the first criteria. Forget the IRR’s as the main reason. The path, your path is so wide (much wider than the immigrant in my example) that it can be so overwhelming and you overthink. I think you should work in the industry before investing.
If you are currently unemployed and thinking about this route, congratulations, you are free to explore. Find a job in the field. Your true potential will help you open doors.
A few questions OP:
What percentage was recurring revenue eg lawn mowing and what percentage was project based?
What made the financing creative I’m just hearing a standard SBA/seller note/equity.
What was the issue with valuation most small businesses trade off of an SDE or revenue multiple, you mention high finance so I’m confused how this was an issue.
I feel your pain here. I quit my job to start my own business as an OnlyFans model.
Soon after I found out they only pay by the inch.
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