Many of the business clients I work with are either side businesses, or side businesses that are turning into “real” businesses. I’ve written before about the struggle of taking a side business and turning it into something more.
Today, I’m going to write about the choices a business owner has with their side business when they start to experience growing pains and frustrations. These are things I’ve observed in my own business, and with the clients I’ve worked with.
I have observed that the 4 choices are:
- Embrace the growth, or
- Choose to level off or maybe even scale down, and stay small, or
- Shut your business down, or
- Get caught in no-man’s land between choices 1, 2 and 3
Joe the Window Washer
Long-time readers may recall a fictional character I unveiled in 2014 called Joe the Window Washer. Joe is not real, but he serves as a composite of the typical business owner I work with.
The following story uses Joe in the place of real situations I’ve dealt with.
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Joe is one of the best window washers in the country, and that’s not an exaggeration. His customers love him. Other window washers envy his work. He’s been innovative in developing unique methods, and even has his own “secret sauce” formula for his own version of “Windex.”
Joe started his business on the side a few years ago. He took it full-time two years ago and has steadily grown to where he’s turning a profit. Not a huge profit, but enough to leave him with a tax liability at the end of the year … but he’s not pulling out much compensation for himself.
Joe finds he can’t handle all the work himself anymore. Last year and this year, he’s hired contractors to help him.
Joe understands that his relationship with these “contractors” is straddling the line between a legitimate contractor situation and an “employee” situation. Joe understands that having employees would be a major burden.
Joe and I have talked. He’s at a crossroads, where he’s starting to get trapped in option 4 on my list above.
He’s not making enough to pay himself a rewarding salary, so he needs to take on more work. But he’s already burning the candle at both ends. He’d have to hire employees — and deal with all the payroll crap that comes with having employees — if he really is going to grow.
Option 2 — scaling back — isn’t really an option for him because he and his wife are barely bringing home enough to pay the bills as it is now. Scaling back and staying small would just make it harder on the family’s monthly budget. (And as a side note — thank goodness his wife works someplace that provides health insurance.)
During our conversation, we talked about forming an S-corporation. He was still small enough to justify being a sole proprietor, but was starting to get into territory where an S-corp would be useful.
Certainly if he chose to grow, an S-corp would be the way to go. But Joe looked sick to his stomach — truly — when I told him about the administrative part of being an S-corp.
For a few months after our conversation, Joe tried to continue growing his business on his own, trying in vain to take on more work and do it all himself. But he realized it was a hopeless fight.
In the end, he decided to shut his window-washing business down and go back to “working for someone else.”
—–
Now, this might seem like a sad ending to the story. Here’s a guy who was trying to live the “American Dream” and run his own business. And he ends up giving it up.
But I say, good for him for realizing his limitations.
He didn’t want to deal with the “crap” that comes with having employees and a growing business. He couldn’t really scale down and stay small either.
He knew his limitations and he got out before he became like so many business owners I know (including myself sometimes, though right now I’m at a point where I’m doing a combo of #1 and #2) — hopelessly caught in option 4, in no-man’s land with a business that’s not a side business but that doesn’t really bring in enough money to make it fulfilling.