March 28, 2017
Most people start their side hustle from scratch. They have an idea, they work to make it happen, and turn it into a business. I did things a little differently. For my side hustle, I bought an existing business, one someone else had started. Here’s what I learned from buying an established business and running it on the side.
No business being in business
Let me start by saying that I took an arts degree in university, and majored in Spanish. I had no intention of having anything to do with what I perceived to be “business”. In retrospect, I really have no idea what my intentions were, but if I had to sum them up in a meaningless phrase, it might be, “vague white girl loftiness involving saving the world”.
Many of my friends were taking business degrees and I thought all they did was take courses in accounting and something horrible called ‘quants’. I assumed they were going to end up working for a big bad boring bank and they assumed I was going to end up in the jungle with malaria.
Fast forward to now: After wrapping up a successful six-year copywriting and branding freelance practice (after working for agencies and nonprofits for 15+ years), I joined the Proposify team in 2015. I’ve also been running a profitable side-business since 2011.
So, surprise, surprise, I am malaria free and I work in “business”.
I’ll save all the gory and glamourous details about how I ended up being a non-business business owner for another post but what I want to tell you about is what I learned about buying an existing business as my side hustle.
How to find a business to buy
At the time I wasn’t looking for a side hustle. I was busy and fulfilled with my freelance practice. I didn’t have a burning desire to be a serial business owner nor was I looking to satisfy a personal passion project.
But one day I was having a coffee with a friend and former agency co-worker when she mentioned that a family member was looking to sell their small business. I was familiar with the business and had always thought it was a clever idea.
The idea was simple - rent baby equipment to people who might need it temporarily, like travelling families, or grandparents who have babies coming to visit and they want to be all tricked out with whatever their family needs.
I don’t have kids, but I do have a niece and nephew who live in another city and when they were little, I was always running around, trying to beg, borrow, or steal whatever I could to make their visit easier. And that wasn’t always easy.
So I totally understood the pain point this business was trying to solve - I was the target market. And I thought it would be fun to have a side hustle to experiment with while making some extra cash.
Takeaway:
Like so many other situations, if you’re interested in buying a business, or even exploring the idea, start by working your network. Especially if you work in the marketing/consulting field, your colleagues are dealing with businesses every day and may know of something available.
Other valuable resources are accountants, bookkeepers, or lawyers. They often know firsthand if any of their clients are thinking about selling a business so it doesn’t hurt to ask.
Or maybe you’re the customer of an existing business that you think is interesting. Why not chat with the owner and see where their head is? I’ve had more than one customer approach me with early inquiries about my business.
Why buy a business vs. start one myself?
1. It was ready to rock
The previous owners had done the heavy lifting of starting a business. They came up with the idea, created a name, incorporated the business, built a website, bought inventory, established processes for payment and pickup/delivery, and proved that the baby equipment rental idea worked and was profitable.
Takeaway:
When you buy an existing business, most of the front end heavy lifting has already been taken care of, so you can hit the ground running.
The other advantage is that usually an existing business already has brand recognition and (hopefully) a good reputation that you can build on, so you don’t have to start trying to create a buzz from scratch.
2. The need was already proven
As I mentioned earlier, I am one of the key targets for this business. I understand what it’s like to need baby equipment short term, and I also knew from my mummy friends the challenges they faced when travelling with small children. The business had already been operating for about four years when I bought it and it was profitable. I didn’t have to see if people would be interested in a service like this - the previous owners had taken that risk for me.
Takeaway:
Being able to relate to the problem your business is solving makes it easier for you to plan and market the business, and deal with customers. Plus with an existing, profitable business, you don’t have to do a test market, conduct surveys, or lie awake late at night wondering if people are going to pick up what you’re laying down. The previous business owners figured that out - your job is to grow.
3. It was profitable
As noted in #1, the business was profitable when I bought it. This made it a safer decision for me to buy, plus it was easier for me to predict how long it would take to see a return on investment. I had a baseline for metrics already established.
Takeaway:
Buying a profitable business with no debt is obviously a safer investment than a business bleeding money. You buy the business and then can get right down to business.
However, if you’re looking at a business that isn’t yet profitable, you may decide that by looking at the operations and the financial statements that you can run the business better, through efficiencies or new products /services/markets, etc. Whatever you decide, it’s crucial to review those financials.
How to buy a business
Meet the owners
The first thing I did was reach out to the existing owners to see if they were comfortable talking with me about the business. The fact that I already knew someone in their family made them more comfortable meeting with me and they knew I was legitimate.
In my case there were two owners, a mother/daughter combo. First, I met with the daughter casually over coffee and then the second meeting was with the mother and daughter together.
Takeaway:
If you can, have someone introduce you to the business owners so you’re not just cold calling them out of the blue. Maybe it’s the person who told you about the business sale, like your lawyer or friend. If the deal moves forward, there’s a lot of sensitive information to be shared and everyone wants to know they’re dealing with someone trustworthy.
Get to know the business operations
In the subsequent meetings with both owners, I asked a million detailed questions, had them walk me through a typical customer journey, and at one point they even physically took me to the airport to show my how they handled airport deliveries/dropoffs. I also inspected all the baby equipment inventory to ensure it was in good condition, up to date, and could still be rented.
Takeaway:
In the same way you get to know how your agency clients do business before you recommend a strategy or campaign, you need to understand the ins and outs of a potential business upfront. No detail is too small - you need to get in the weeds to harvest the field.
Find out the reason for selling
The reason the mother/daughter owners were selling this small business was that the mother wanted more freedom during the summer. And since summer is basically Christmas for this business, there isn’t really time for getaways. The daughter had a full-time job and two small children so running this business as her side hustle was becoming overwhelming for her.
These reasons didn’t raise any red flags for me. They weren’t selling the business because it wasn’t profitable, or due to a lack of customers, or that they hated running it. It was really just a matter of time.
Takeaway:
It is critical to find out why owners are selling a business. There’s no real right or wrong reasons, you just need to know so you can decide whether you can handle those reasons.
Open the books
I looked at their financial statements, and I got a letter from Revenue Canada that said they didn’t owe any taxes. I learned their average sales, peak times, and looked at their expenses. Some of it I understood, and the rest of it I got help from my accountant to make sure things were clean, mean, and nothing smelled fishy.
Takeaway:
At some point, not in the very first meeting, but when you get serious about making an offer, you need to see their numbers. This is 100% non-negotiable. Financial statements, everything.
The owners might make you sign an NDA (non-disclosure agreement) stating you won’t share the information with anyone. I have no problem with this request - it is sensitive information, after all.
If financials aren’t your forte then you need to enlist the help of an accountant or business advisor - it is worth the investment to seek their help. It could save you a lot of tears down the road.
Finance your business
I was fortunate as I didn’t need to borrow money or get a business loan to make an offer. The business I bought was so small that I was able to finance it myself through a combination of money down and a monthly payment plan over one year. The owners were very open to this arrangement. And because the business was practically turnkey - everything ready to go and I was running it out of my home - the startup costs were small and manageable on my own.
I was lucky with this situation but most buyers will need to secure some sort of financing, business loan, or grant. This isn’t my area of expertise so be sure to talk to your accountant, business advisor, and/or banker for financing recommendations.
Hire a lawyer
The owners of this small business and I were a little naive. We all got along great, we had a mutual personal connection, and this was a small, home-based business. We figured I’d just hand over the money, they’d hand over the business, and it would be a done deal. Not so at all. It’s an incorporated business - there was a legal process we had to follow and one we both needed lawyers for.
We didn’t use the lawyers for negotiations - we had already settled on the sale price and conditions but the lawyers made sure all the details were taken care of, papers were filed, and official stamps stamped.
Takeaway:
Hire a lawyer. Period. My purchase was straightforward so it wasn’t outrageously expensive but my lawyer was very diligent and concerned that everything was done properly. While I was anxious to just get moving, I now appreciate how thorough he was about things that I hadn’t even considered.
How to make a side hustle work for you
After six years in operation, here are a just few things I’ve learned about buying a business, owning a business, and doing it all on the side.
1. It needs to fit your schedule.
If you’re going to have a side hustle, you need to be sure you actually have time to hustle.
Because I was self-employed, I worked primarily from home, and didn’t usually work a typical 9-5 day, it was easier to find time to answer inquiries, and schedule deliveries and pickups around my other work. The two rarely conflicted with each other. Plus, it turns out that often the busiest seasons for my side hustle (summertime) happened when things were slower in my freelance business.
Now that I work full-time at Proposify, things are a little trickier but I try to schedule weekday pickups and deliveries first thing in the morning or the evening. Sometimes I’m able to work from home so I can squeeze in a quick pick up here and there. My husband now works at home so he’s become my unofficial occasional employee, dealing out car seats and playpens when I’m not available.
2. Manage expectations
This is a small, home-based business. I don’t offer 24/7 service, there’s no showroom, you must book in advance, and I am the only employee.
I’ve worked hard to find a balance in communicating to my customers that while I offer a high-quality service that they can trust, I am not Babies R Us. In the same way I managed the expectations of clients in my freelance work, I make sure that my customers understand the context upfront.
I do it in a positive way and many customers have commented how they like the small business approach - it feels more personal and more trustworthy, which is important in a business dealing with parents and babies.
3. There is a difference between owning a business and running a business
Sometimes I was so busy doing the client work in my freelance business and looking after my side hustle customers it was hard to find the time to take care of the work involved in owning and growing both businesses.
Things like financials, red tape requirements, developing new business opportunities, planning growth, etc. It’s a very different role and I didn’t always love the role of business owner, I wanted to be a business doer.
So I’ve learned to be more disciplined in setting aside time to take care of that stuff, and to remind myself that it’s as much a part of the business as dealing with customers.
4. What kind of business owner do you want to be?
We are constantly bombarded with messages about what a business owner should be and what they should be doing, and this expectation may hold people back from starting their own side hustle.
I’ve spent my career working directly with business owners and I’ve seen firsthand that no two business owners are alike. The past six years taught me about the kind of business owner I want to be.
How I run my business is up to me, it’s not about someone else’s expectation of what I should be doing.
I want my business practices to be aligned with my personal practices. I run my business to make sense for the kind of life I want. I want to own my business, not have it own me.
You can do it
For me, buying an existing business as my side hustle was a safe way to dip my toe into the entrepreneurial pool. I have a learned a lot about business, customers, and myself in the process.
One thing I learned is that while I like this business as my side hustle, I'm not interested in it being my full-time gig and that’s another important distinction to make.
People might be hesitant about the idea of buying a business as their side hustle, that they imagine it’s only for large companies, or for experienced entrepreneurs. But there are lots of small, ripe-for-the-picking existing businesses out there that could benefit from your knowledge, experience, and creativity.
Have you bought an existing business as your side hustle?
