Another "Should I sell my business" thread

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
HenrysCreek
Posts: 17
Joined: Tue Sep 26, 2017 1:18 am

Another "Should I sell my business" thread

Post by HenrysCreek » Tue Sep 26, 2017 2:11 am

First time poster - found Bogleheads from another forum and happy to be here. Looking forward to some exciting dialogue!

Background:
54 years old. Bought this business about 15 years ago and have invested a lot of sweat and energy to build it into a nice retirement nest egg. Revenue in 2017 will be $25 million with pre-tax of about $1.5M after taking out a salary of about $500k. Adjusted EBITA of about $2.4-$2.6M. It's set up as a Sub-S, so I'm taxed pretty heavily each year. The business maintains a minimum of about $2M in equity (mainly cash and receivables). Business has grown to the point that we (wife and I own it 100%) have a great management team in place, so it's not reliant upon us to continue it's growth/success. This wasn't easy to do and cost us a lot over the years, but we're pretty well over that hump now. That said, wife and I are still quasi full time.

The biggest question we're chewing on now is, "Do we sell it now as it's continuing to grow" and step into early retirement (would be nice) or continue to take large dividends?

Outside of the business, I have 3 kids - 2 grown and independent, 1 in high school. Colleges tuitions are fully funded for kids and grandkids (5) via 529's through grandparents and our investments (about $2.5M total).

We have little to no debt (small mortgage) on the main residence, vacation home is paid for.

Retirement wise, we have about $2M in investments (mainly cash, 401k's and index funds).

Back to the business. From a valuation perspective, similar businesses are selling for about 4-6 times adjusted EBITA. We're on the radar of some PE firms, so it's probable we can get the top end. That values the business in the $12-$15M range. Company has about $1.5M in debt from some smaller acquisitions and most everything is depreciated over the years - so call it $11.5 - 13.5 pre-tax. Cap Gains of 28% ($3.2-3.8) leaves $8.3 - $9.7M.

So....the question is: Am I better off selling and investing the $9M or keeping the business and pulling out about $1.2 -$1.4 each year (pre-tax) in salary and dividends? I'll start another thread in the other forum about "how to invest $10M", so as not to cross over that line - but it's definitely part of the "do i sell" equation.

Thanks for the advice!

User avatar
Tamarind
Posts: 642
Joined: Mon Nov 02, 2015 2:38 pm

Re: Another "Should I sell my business" thread

Post by Tamarind » Tue Sep 26, 2017 5:49 am

Congrats. It sounds like your hard work has resulted in a solid company.

If you sold it would you have reached FI and not need to work again for pay? Is that an attractive option for you and your wife? I'd jump at the chance but obviously people's wants are different. My thinking is also influenced by having worked for a company that turned down offers when they thought they could do better, but 5 years later was forced to sell for 10% of those offers, to it's own reseller.

Generally I'd say that when you are on the radar of buyers, business is growing, and the management can keep going without you, that is precisely the time to sell. If your hard work will be rewarded with "enough" and you're ready to not work so hard, there's no reason to wait.

User avatar
bottlecap
Posts: 4963
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Another "Should I sell my business" thread

Post by bottlecap » Tue Sep 26, 2017 6:00 am

What do you want to do? Will the $10 million generate enough for you to live on (I presume so)?

If you are ready to get out, it does sound like a good time to sell. I would do it while you're getting a good price and we're not in a recession.

Congratulations on your hard work paying off.

Good luck,

JT

User avatar
nedsaid
Posts: 8741
Joined: Fri Nov 23, 2012 12:33 pm

Re: Another "Should I sell my business" thread

Post by nedsaid » Tue Sep 26, 2017 6:24 am

HenrysCreek wrote:
Tue Sep 26, 2017 2:11 am
First time poster - found Bogleheads from another forum and happy to be here. Looking forward to some exciting dialogue!

Background:
54 years old. Bought this business about 15 years ago and have invested a lot of sweat and energy to build it into a nice retirement nest egg. Revenue in 2017 will be $25 million with pre-tax of about $1.5M after taking out a salary of about $500k. Adjusted EBITA of about $2.4-$2.6M. It's set up as a Sub-S, so I'm taxed pretty heavily each year. The business maintains a minimum of about $2M in equity (mainly cash and receivables). Business has grown to the point that we (wife and I own it 100%) have a great management team in place, so it's not reliant upon us to continue it's growth/success. This wasn't easy to do and cost us a lot over the years, but we're pretty well over that hump now. That said, wife and I are still quasi full time.

Nedsaid: This isn't so much a financial decision but a life planning decision. Do you want to retire? If you retired, do you have a plan for what you want to do in retirement? My thinking is that after selling your business and retiring, you might be just bored out of your skull. You might find yourself starting up another venture in a couple more years. You are a somebody now, you probably have lots of contacts through your business and are probably looked up to in your community. When you sell and retire, all those dynamics will change, things just won't be the same. So think all this through.

The biggest question we're chewing on now is, "Do we sell it now as it's continuing to grow" and step into early retirement (would be nice) or continue to take large dividends?

Nedsaid: The best time to sell a business is when it is doing well. A growing business should sell at a higher multiple of earnings than a business that has matured. The thing is, you would be leaving something for the buyer, that is the potential for continued growth. One factor is how many more years do you think your business will keep growing?

Outside of the business, I have 3 kids - 2 grown and independent, 1 in high school. Colleges tuitions are fully funded for kids and grandkids (5) via 529's through grandparents and our investments (about $2.5M total).

We have little to no debt (small mortgage) on the main residence, vacation home is paid for.

Retirement wise, we have about $2M in investments (mainly cash, 401k's and index funds).

Back to the business. From a valuation perspective, similar businesses are selling for about 4-6 times adjusted EBITA. We're on the radar of some PE firms, so it's probable we can get the top end. That values the business in the $12-$15M range. Company has about $1.5M in debt from some smaller acquisitions and most everything is depreciated over the years - so call it $11.5 - 13.5 pre-tax. Cap Gains of 28% ($3.2-3.8) leaves $8.3 - $9.7M.

So....the question is: Am I better off selling and investing the $9M or keeping the business and pulling out about $1.2 -$1.4 each year (pre-tax) in salary and dividends? I'll start another thread in the other forum about "how to invest $10M", so as not to cross over that line - but it's definitely part of the "do i sell" equation.

Nedsaid: That is beyond my paygrade, knowing what your business is worth and whether you are better off selling now or continuing to own the business. If you start thinking about your business as a cash cow, I wonder how this will affect the growth of your business. You and your wife's hard work and dynamism is what made this grow in the first place. Pretty much, you are better off to sell while your company is still growing rather until waiting until it becomes a cash cow. Fortunately, you have a good management team in place.

Selling a business can have pitfalls to it, this is a transaction that will take very careful planning. I don't need to tell you that you need the best advice money can buy. Fortunately, you have something that is very attractive to buyers.


Thanks for the advice!
A fool and his money are good for business.

carolinaman
Posts: 2632
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Another "Should I sell my business" thread

Post by carolinaman » Tue Sep 26, 2017 7:12 am

You have received some good advice from others. One thing I will add is to get sound advice on tax ramifications of a sell of your business. It sounds like you may have a handle on that already but with the size of your business and the proceeds of a sale, it may be wise to get some advice specific to a sale.

Have you considered selling to your current employees or a subset of them? This may not get you top dollar, but may get you enough to live comfortably on and reward them for their support and service to you.

soccerdad12
Posts: 348
Joined: Thu Jan 19, 2012 8:52 am

Re: Another "Should I sell my business" thread

Post by soccerdad12 » Tue Sep 26, 2017 7:22 am

I am in a very similar situation as you and have grappled with the same issue. There are 2 decision points here in my opinion. Are you willing to wait to work through another recession before you sell? If the answer is no, then I would sell now while the getting is good with valuations. If you have a good management team in place and can cut your work hours way back now, can you still pull $500k+/year from the business? If so, then you have a potential recurring source of income for many years to come. Can you conceivably do that for 10 more years and then sell for a similar valuation? I am still actively working in the business and enjoying it so I draw quite a bit more, but life is pretty good right now. If I, or my wife, had any health issues I would sell in a minute and retire.

Best of luck to you!

Jack FFR1846
Posts: 5775
Joined: Tue Dec 31, 2013 7:05 am

Re: Another "Should I sell my business" thread

Post by Jack FFR1846 » Tue Sep 26, 2017 7:40 am

This decision might hinge on succession. My grandfather started the family business and my dad and aunt worked in it starting in high school. In the early 60's, my dad bought it out. Although my sister worked in it for a short time, I never had any interest and went my own way. Once my dad passed, my mom sold the business and building, not wanting to continue running it. I'm sure that if I had been interested in working in that business, my parents would have made it possible for me to take it over.

So, do you have plans for the kids to take over? Have any of them expressed interest in doing that? If yes, that might be a reason to keep going. Maybe find another hire or two to allow you to back away from full time work. If no, then sell while there's interest. I'm sure you're aware, as much as the business might continue to grow, it also might not.
Bogle: Smart Beta is stupid

User avatar
Meaty
Posts: 488
Joined: Mon Jul 22, 2013 7:35 pm

Re: Another "Should I sell my business" thread

Post by Meaty » Tue Sep 26, 2017 7:53 am

HenrysCreek wrote:
Tue Sep 26, 2017 2:11 am
First time poster - found Bogleheads from another forum and happy to be here. Looking forward to some exciting dialogue!

Background:
54 years old. Bought this business about 15 years ago and have invested a lot of sweat and energy to build it into a nice retirement nest egg. Revenue in 2017 will be $25 million with pre-tax of about $1.5M after taking out a salary of about $500k. Adjusted EBITA of about $2.4-$2.6M. It's set up as a Sub-S, so I'm taxed pretty heavily each year. The business maintains a minimum of about $2M in equity (mainly cash and receivables). Business has grown to the point that we (wife and I own it 100%) have a great management team in place, so it's not reliant upon us to continue it's growth/success. This wasn't easy to do and cost us a lot over the years, but we're pretty well over that hump now. That said, wife and I are still quasi full time.

The biggest question we're chewing on now is, "Do we sell it now as it's continuing to grow" and step into early retirement (would be nice) or continue to take large dividends?

Outside of the business, I have 3 kids - 2 grown and independent, 1 in high school. Colleges tuitions are fully funded for kids and grandkids (5) via 529's through grandparents and our investments (about $2.5M total).

We have little to no debt (small mortgage) on the main residence, vacation home is paid for.

Retirement wise, we have about $2M in investments (mainly cash, 401k's and index funds).

Back to the business. From a valuation perspective, similar businesses are selling for about 4-6 times adjusted EBITA. We're on the radar of some PE firms, so it's probable we can get the top end. That values the business in the $12-$15M range. Company has about $1.5M in debt from some smaller acquisitions and most everything is depreciated over the years - so call it $11.5 - 13.5 pre-tax. Cap Gains of 28% ($3.2-3.8) leaves $8.3 - $9.7M.

So....the question is: Am I better off selling and investing the $9M or keeping the business and pulling out about $1.2 -$1.4 each year (pre-tax) in salary and dividends? I'll start another thread in the other forum about "how to invest $10M", so as not to cross over that line - but it's definitely part of the "do i sell" equation.

Thanks for the advice!

You might look into a ESOP. I had a family member in a similar situation. An ESOP enabled them to cash out TAX FREE and continue to draw a salary and benefits. You'd need a good CPA and attorney but it seemed like the perfect blend solution. He also ceased any active role in the business shortly after he cashed out.

Good luck
"Discipline equals Freedom" - Jocko Willink

notmyhand
Posts: 218
Joined: Mon Jul 15, 2013 7:43 pm

Re: Another "Should I sell my business" thread

Post by notmyhand » Tue Sep 26, 2017 8:15 am

Jack FFR1846 wrote:
Tue Sep 26, 2017 7:40 am
This decision might hinge on succession. My grandfather started the family business and my dad and aunt worked in it starting in high school. In the early 60's, my dad bought it out. Although my sister worked in it for a short time, I never had any interest and went my own way. Once my dad passed, my mom sold the business and building, not wanting to continue running it. I'm sure that if I had been interested in working in that business, my parents would have made it possible for me to take it over.

So, do you have plans for the kids to take over? Have any of them expressed interest in doing that? If yes, that might be a reason to keep going. Maybe find another hire or two to allow you to back away from full time work. If no, then sell while there's interest. I'm sure you're aware, as much as the business might continue to grow, it also might not.
This.
DH's dad was a business owner and both DH and his older sister worked in the business throughout their young years, However, when both left to college, the business was sold and DH's dad's explanation was "well neither of them seemed interested" although he never asked either of them. DH's sister still harbors resentment for it and currently works for a competitor and DH brings it up sadly once every few years. Hard to know if they could have pulled off buying dad out but it had gone through two previous generations so it seems sad that it was sold.

randomguy
Posts: 4890
Joined: Wed Sep 17, 2014 9:00 am

Re: Another "Should I sell my business" thread

Post by randomguy » Tue Sep 26, 2017 9:29 am

Meaty wrote:
Tue Sep 26, 2017 7:53 am



You might look into a ESOP. I had a family member in a similar situation. An ESOP enabled them to cash out TAX FREE and continue to draw a salary and benefits. You'd need a good CPA and attorney but it seemed like the perfect blend solution. He also ceased any active role in the business shortly after he cashed out.

Good luck
It isn't tax free.. It is tax deferral. Assuming 0 cost basis, you can go from 10 million in your company to 10 million in vanguard total market. You will still owe taxes when you sell (hand waving about donating stock and dying:)). It is nice but a long way from tax free. That also only works if you can get outside financing to do the transacton.

The one risk with a lot of ESOP sales is that often the seller does a good chunk of the financing (i.e. where does the 10 million come from? The employees don't have it so you end up doing something like a 5 million loan from the bank 5 million from the owner) and then the owner is exposed to the risk of the business going belly up (i.e. sales fall and they can't make loan payments).

ESOPs do solve the problem of finding a buyer.:) They are worth looking into as they have some pluses and minuses.

The actual decision to sell will pretty much come down to are you willing to give up money to reduce risk. You would be better off working 10 more years, sucking out a million/year and selling for 20 million from the decade of growth. But the risk is always that sales drop and both the amount you can suck out and the amount you can sell for drop signficantly. If you need 5 million to live the life you want, selling seems like an easy choice. If you need 15 million, you best chance is to roll the dice and keep on working. To some extent it doesn't matter if you get a good deal (10x EBITA) or bad (2x EBITA) if you are getting the amount of money you need. Yeah more money is always nice but once you hit your number, the value of each additional dollars drops.

ChesaPeAke27
Posts: 14
Joined: Fri Mar 04, 2016 1:30 pm

Re: Another "Should I sell my business" thread

Post by ChesaPeAke27 » Tue Sep 26, 2017 11:57 am

Have you considered getting a formal valuation done? There are many rules of thumb, one of which you cited in your own valuation. This would cost a few thousand dollars, but will give you a supported dollar value.
ChesaPeAke27

smitcat
Posts: 676
Joined: Mon Nov 07, 2016 10:51 am

Re: Another "Should I sell my business" thread

Post by smitcat » Tue Sep 26, 2017 12:02 pm

There are only two reasons that I would hesitate to sell at this point....
1. You have family that seriously and genuinely wants to take over the business
2. Your retirement costs will exceed you current savings and business sale revenue

I have no idea if number one is in play but after careful conversations with our daughter I know that she really does not want to take over our business.
So that leaves number 2 - do you have enough funds for a yearly retirement in your view.
With that amount of money most anyone I know will have enough to have many fulfilling retirements - but only you can answer that question.
If it were me I would sell now before anything changes as things always do - time waits for no one.
Congratulations and good luck with whatever you do.

hoops777
Posts: 1932
Joined: Sun Apr 10, 2011 12:23 pm

Re: Another "Should I sell my business" thread

Post by hoops777 » Tue Sep 26, 2017 12:19 pm

If selling the business provides everything you want and need for your family and you no longer care about the day to day challenge of running it it,sell it.Assuming that you have a guaranteed great outcome now vs an unknown outcome the longer time marches forward.Not to be pessimistic,but sometimes unexpected things can happen that you never envisioned.
K.I.S.S........so easy to say so difficult to do.

HenrysCreek
Posts: 17
Joined: Tue Sep 26, 2017 1:18 am

Re: Another "Should I sell my business" thread

Post by HenrysCreek » Tue Sep 26, 2017 1:14 pm

I agree, we can't control what we can't control in life and in business.
Sounds like it's time to pretty up the bride! :D
The lawyers and accountants will be happy! :shock:

betablocker
Posts: 286
Joined: Mon Jan 11, 2016 1:26 pm

Re: Another "Should I sell my business" thread

Post by betablocker » Tue Sep 26, 2017 2:44 pm

I think about these issues a lot as a business owner and I'd lean toward keeping it with lots of caveats. It's obviously a personal decision and there are several mitigating factors: how cyclical is the business? How have valuations fluctuated in that type of business? How good is the management team and how secure are you in their continuing and their succession? What kind of earn out will you have to commit to? That can be miserable.

Personally I think an operating and profitable business is never something to give up lightly. It's a thing of beauty. Turn more over to your management team, take a leave of absence, etc. but think long and hard before selling it. They are hard to build as you know and the PE firms want them because they just churn out cash. Also keep in mind that you are 54. What are you going to do after? I know lots of owners who have sold and don't know what to do with themselves. There's only so much golf and caribbean one person can stand.

Could you work on making the improvements that PE would yourself while making sure the management team can run the day to day? Could you focus on improving profitability and then diversifying into the public markets? Listen to the Built to Sell podcast. It's interviews with dozens of owners who have sold. Should give you some perspective. Good luck!

runner540
Posts: 401
Joined: Sun Feb 26, 2017 5:43 pm

Re: Another "Should I sell my business" thread

Post by runner540 » Tue Sep 26, 2017 3:49 pm

soccerdad12 wrote:
Tue Sep 26, 2017 7:22 am
I am in a very similar situation as you and have grappled with the same issue. There are 2 decision points here in my opinion. Are you willing to wait to work through another recession before you sell? If the answer is no, then I would sell now while the getting is good with valuations. If you have a good management team in place and can cut your work hours way back now, can you still pull $500k+/year from the business? If so, then you have a potential recurring source of income for many years to come. Can you conceivably do that for 10 more years and then sell for a similar valuation? I am still actively working in the business and enjoying it so I draw quite a bit more, but life is pretty good right now. If I, or my wife, had any health issues I would sell in a minute and retire.

Best of luck to you!
This is good advice. I've been near a lot of these sales, and valuations are back at 2006-2007 records, and in some cases trading above public company valuations - very unusual, no one knows how long that will last.

Note that many PE funds may be interested in keeping you involved post sale as a consultant, but it would be up to you.

You are facing a lifestyle decision about working full time, and a financial decision about risk adjusted return from investing the proceeds of a sale, or continuing to hold a concentrated position in a business you know and control.

Good luck and congrats to you and your wife!

User avatar
dm200
Posts: 13795
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Another "Should I sell my business" thread

Post by dm200 » Tue Sep 26, 2017 4:13 pm

I don't know if such risks are higher today than in past years or decades, but we see many profitable businesses have a very fast change in fortune due to external changes in the economy.

One example is the Taxi businesses in cities like NY City - where taxi operators paid hundreds of thousands of dollars for "Taxi medallions" - and have been profitable for many decades. They could sell the medallion (needed to operate a taxi) for what they paid for it (or more) whenever they wanted.

Then - BOOM - along come Uber and Lyft - and the taxi business profitability dropped through the floor.

HenrysCreek
Posts: 17
Joined: Tue Sep 26, 2017 1:18 am

Re: Another "Should I sell my business" thread

Post by HenrysCreek » Tue Sep 26, 2017 5:11 pm

I agree. While not getting into the details of my business, it's heavily reliant upon products coming from overseas.
A trade embargo would cripple our nation - and selfishly - cripple me too. Economy takes a major down-turn and we'll lost 10-20% of our revenue and more of our profits. Client receivables are unsecured, so if it gets nasty like the last recession, our ability to collect from clients is limited at best.
We're pretty good at being nimble, but it definitely changes our retirement plans.

Then again, if all those things above happen - my investments are getting killed as well! LOL
Market timing selling a business vs investing in the market.....hmmmm. :beer

User avatar
dm200
Posts: 13795
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Another "Should I sell my business" thread

Post by dm200 » Tue Sep 26, 2017 5:20 pm

HenrysCreek wrote:
Tue Sep 26, 2017 5:11 pm
I agree. While not getting into the details of my business, it's heavily reliant upon products coming from overseas.
A trade embargo would cripple our nation - and selfishly - cripple me too. Economy takes a major down-turn and we'll lost 10-20% of our revenue and more of our profits. Client receivables are unsecured, so if it gets nasty like the last recession, our ability to collect from clients is limited at best.
We're pretty good at being nimble, but it definitely changes our retirement plans.
Then again, if all those things above happen - my investments are getting killed as well! LOL
Market timing selling a business vs investing in the market.....hmmmm. :beer
or a "trade war"...

User avatar
Sandtrap
Posts: 2445
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳

Re: Another "Should I sell my business" thread

Post by Sandtrap » Tue Sep 26, 2017 5:27 pm

If you are pondering selling the business then perhaps it is time to sell.

Because. . . if you were having so much fun growing and running your business that you would not consider selling it, then you wouldn't consider selling it.

j

HenrysCreek
Posts: 17
Joined: Tue Sep 26, 2017 1:18 am

Re: Another "Should I sell my business" thread

Post by HenrysCreek » Tue Sep 26, 2017 6:20 pm

Lots of continued great advice guys - greatly appreciated. I may end up spending more time here than the boating/fishing forums! LOL
SandTrap: love the screen name - hate them in real life!
Beta: thanks for the Podcast recommendation.

Can the management team continue to grow it, yes, but there's another underlying issue (should have disclosed this earlier!), the wife has a hard time stepping away from the business. She's a great boss, but this business will drive her into the grave. The busier/larger we get, the more she works. It's just her ethnic upbringing - and she's good at it. I'm more of an entrepreneur, train the staff and managers and allow them to do their jobs. Wife is IN their business full-time. Again, not a bad thing, it's been great for the business and team (mostly), but the only way she'll leave is if/when we sell. She's gotten better: no longer signs every check, only approves larger wire transfers, doesn't interview every associate, BUT, a sabatical is out of the question! She just can't be "away" from it for more than a few hours. It CAN and does run without her, we've got a great team.

Selling the business will probably add years to her life - and that's very important to our family. (I think I'm getting to my answer talking through this!).
I can always scratch the entrepreneurial itch again in the future, if it surfaces.

trustquestioner
Posts: 13
Joined: Sun Sep 03, 2017 6:50 pm

Re: Another "Should I sell my business" thread

Post by trustquestioner » Tue Sep 26, 2017 7:00 pm

Possible alternative: sell the operating business, lease back the real estate.

User avatar
nedsaid
Posts: 8741
Joined: Fri Nov 23, 2012 12:33 pm

Re: Another "Should I sell my business" thread

Post by nedsaid » Tue Sep 26, 2017 10:13 pm

HenrysCreek wrote:
Tue Sep 26, 2017 1:14 pm
I agree, we can't control what we can't control in life and in business.
Sounds like it's time to pretty up the bride! :D
The lawyers and accountants will be happy! :shock:
The taxman will be happy too! State and Federal. :D
A fool and his money are good for business.

User avatar
nedsaid
Posts: 8741
Joined: Fri Nov 23, 2012 12:33 pm

Re: Another "Should I sell my business" thread

Post by nedsaid » Tue Sep 26, 2017 10:28 pm

HenrysCreek wrote:
Tue Sep 26, 2017 6:20 pm
Lots of continued great advice guys - greatly appreciated. I may end up spending more time here than the boating/fishing forums! LOL
SandTrap: love the screen name - hate them in real life!
Beta: thanks for the Podcast recommendation.

Can the management team continue to grow it, yes, but there's another underlying issue (should have disclosed this earlier!), the wife has a hard time stepping away from the business. She's a great boss, but this business will drive her into the grave. The busier/larger we get, the more she works. It's just her ethnic upbringing - and she's good at it. I'm more of an entrepreneur, train the staff and managers and allow them to do their jobs. Wife is IN their business full-time. Again, not a bad thing, it's been great for the business and team (mostly), but the only way she'll leave is if/when we sell. She's gotten better: no longer signs every check, only approves larger wire transfers, doesn't interview every associate, BUT, a sabatical is out of the question! She just can't be "away" from it for more than a few hours. It CAN and does run without her, we've got a great team.

Selling the business will probably add years to her life - and that's very important to our family. (I think I'm getting to my answer talking through this!).
I can always scratch the entrepreneurial itch again in the future, if it surfaces.
Your discussion about your wife and her involvement in the business was very helpful. It sounds like she in particular gets both a purpose and an identity from her role in the business. This isn't unique to her, indeed, those of us in careers derive a lot of our identity from our employer and our line of work. I am networking for my next job, today I visited my former boss and a Finance Director that I worked with as a Hospital accountant. It was an odd feeling, I felt like a has been and a never were. If I feel that way about a job I held for over 15 years, imagine how your wife feels about that business. She has literally put her heart and soul into it.

So if you and your wife do want to sell, you have to think about something new that both of you can put your talents, abilities, and passions. Otherwise, there will be that feeling that something has changed. Loss of purpose, loss of meaning, and loss of prestige. This is not meant in any way as a criticism but just an observation of human nature.

In the case of Peter Lynch, the famous manager of the Fidelity Magellan mutual fund, he and his wife put their efforts into charitable work. He also retired from fund management at the top. Mr. Lynch continued in a lesser role at Fidelity, as I recall as a company spokesman and as a mentor. He retired early but he had something to retire into.

The thing is, running a business is not easy. I have known a lot of businessmen in my lifetime and I have heard many of their stories. There is an old saying that business is trouble, as long as you are in business, you are in trouble. I really appreciate all these men and women do, not only in their role in helping to generate the local economy but also in providing employment. Not everyone is cut out to run a business. You and your wife deserve a lot of credit and a lot of respect, this is not easy stuff.
A fool and his money are good for business.

HenrysCreek
Posts: 17
Joined: Tue Sep 26, 2017 1:18 am

Re: Another "Should I sell my business" thread

Post by HenrysCreek » Tue Sep 26, 2017 10:56 pm

nedsaid wrote:
Tue Sep 26, 2017 10:28 pm
HenrysCreek wrote:
Tue Sep 26, 2017 6:20 pm
Lots of continued great advice guys - greatly appreciated. I may end up spending more time here than the boating/fishing forums! LOL
SandTrap: love the screen name - hate them in real life!
Beta: thanks for the Podcast recommendation.

Can the management team continue to grow it, yes, but there's another underlying issue (should have disclosed this earlier!), the wife has a hard time stepping away from the business. She's a great boss, but this business will drive her into the grave. The busier/larger we get, the more she works. It's just her ethnic upbringing - and she's good at it. I'm more of an entrepreneur, train the staff and managers and allow them to do their jobs. Wife is IN their business full-time. Again, not a bad thing, it's been great for the business and team (mostly), but the only way she'll leave is if/when we sell. She's gotten better: no longer signs every check, only approves larger wire transfers, doesn't interview every associate, BUT, a sabatical is out of the question! She just can't be "away" from it for more than a few hours. It CAN and does run without her, we've got a great team.

Selling the business will probably add years to her life - and that's very important to our family. (I think I'm getting to my answer talking through this!).
I can always scratch the entrepreneurial itch again in the future, if it surfaces.
Your discussion about your wife and her involvement in the business was very helpful. It sounds like she in particular gets both a purpose and an identity from her role in the business. This isn't unique to her, indeed, those of us in careers derive a lot of our identity from our employer and our line of work. I am networking for my next job, today I visited my former boss and a Finance Director that I worked with as a Hospital accountant. It was an odd feeling, I felt like a has been and a never were. If I feel that way about a job I held for over 15 years, imagine how your wife feels about that business. She has literally put her heart and soul into it.

So if you and your wife do want to sell, you have to think about something new that both of you can put your talents, abilities, and passions. Otherwise, there will be that feeling that something has changed. Loss of purpose, loss of meaning, and loss of prestige. This is not meant in any way as a criticism but just an observation of human nature.

In the case of Peter Lynch, the famous manager of the Fidelity Magellan mutual fund, he and his wife put their efforts into charitable work. He also retired from fund management at the top. Mr. Lynch continued in a lesser role at Fidelity, as I recall as a company spokesman and as a mentor. He retired early but he had something to retire into.

The thing is, running a business is not easy. I have known a lot of businessmen in my lifetime and I have heard many of their stories. There is an old saying that business is trouble, as long as you are in business, you are in trouble. I really appreciate all these men and women do, not only in their role in helping to generate the local economy but also in providing employment. Not everyone is cut out to run a business. You and your wife deserve a lot of credit and a lot of respect, this is not easy stuff.
Ned, thoughtful and greatly appreciated comments. Thanks you. My wife and I both spend a considerable amount of time and money on community work. Giving back to a city that has been our homes since birth. That will easily consume her time, along with tennis and possibly any non-passive investments we make (should she choose to go back down that path). Bottom line, she's ready for the next phase of life and this will be good for her. She may just not know it! LOL

Theseus
Posts: 253
Joined: Sat Jan 23, 2016 9:40 am

Re: Another "Should I sell my business" thread

Post by Theseus » Wed Sep 27, 2017 9:07 am

Congratulations on your success. I am sure it is gratifying to see all the hard work come to fruition.

I just sold my business about two months back at the age of 50. I am FIR. Here are my thoughts. In somewhat random order.

1. Nedsaid is correct. You will get the most value if you sell when its growing. If you demonstrate strong growth rate of last 3-4 years, a good backlog for next 1-2 years (or longer), great potential for future 3-5 years, you will get a great multiple. The NPV in the valuation process will account for all of that.

2. Not sure what kind of business you are in. But I am sure you know that going from $25M to $50M and beyond is a fairly different ball game than getting to $25M. You seem to be a good manager and know how to delegate. But process infrastructure has to be there to allow you to scale beyond $25M as smoothly as possible. Also at your current size, you may be able to control quality of your work without too much formalization. That will change significantly and I have seen quality suffer when companies get larger - and ultimately loosing customers in droves. Unless you built your company with scalable processes and quality built into it delivery, this is not an easy task to retrofit. It will involve a lot of challenges and pain as the company culture may have to change. You have to ask yourself if are you ready for that?

3. S-corp is more valuable for a C-Corp to buy for tax purposes (assets sell vs. stock sell) enhancing your company value. It can put you at tax disadvantage but most buyers will make you whole. If you have not done so you may want to look at this article. https://www.forbes.com/sites/anthonynit ... e578bb4fa0

4. If a big company buys you out they may leave you alone and let you and your wife to continue to run the unit. I know two examples where a larger company wanted to get an entry into the market. They purchased the small business (almost your size) and let the owner run the unit for 3-5 years. Obviously you will not be the ultimate boss but will have continued income and work that you may enjoy. Also it may allow a good transition out. You just have to find a right buyer.

5. As you probably know, everything is negotiable when you make a deal. E.g. When I was ready to sell my business I didn't want an earn out. If I had accepted earn out, I would have made more money but then I would have to work for at least 1-2 years. But I was ready to quit the day money hit my bank account, and didn't want "strings" attached. So I accepted less money. I also offered a compensation free transition for a few months - which meant they didn't "own" me. Also my condition to the buyers included two employees guaranteed employment for a full year (or they have to pay 1.5 times the salary to let them go). Basically anything you want is negotiable with appropriate horse trading.

JBTX
Posts: 1534
Joined: Wed Jul 26, 2017 12:46 pm

Re: Another "Should I sell my business" thread

Post by JBTX » Wed Sep 27, 2017 9:40 am

HenrysCreek wrote:
Tue Sep 26, 2017 2:11 am
First time poster - found Bogleheads from another forum and happy to be here. Looking forward to some exciting dialogue!

Background:
54 years old. Bought this business about 15 years ago and have invested a lot of sweat and energy to build it into a nice retirement nest egg. Revenue in 2017 will be $25 million with pre-tax of about $1.5M after taking out a salary of about $500k. Adjusted EBITA of about $2.4-$2.6M. It's set up as a Sub-S, so I'm taxed pretty heavily each year. The business maintains a minimum of about $2M in equity (mainly cash and receivables). Business has grown to the point that we (wife and I own it 100%) have a great management team in place, so it's not reliant upon us to continue it's growth/success. This wasn't easy to do and cost us a lot over the years, but we're pretty well over that hump now. That said, wife and I are still quasi full time.

The biggest question we're chewing on now is, "Do we sell it now as it's continuing to grow" and step into early retirement (would be nice) or continue to take large dividends?

Outside of the business, I have 3 kids - 2 grown and independent, 1 in high school. Colleges tuitions are fully funded for kids and grandkids (5) via 529's through grandparents and our investments (about $2.5M total).

We have little to no debt (small mortgage) on the main residence, vacation home is paid for.

Retirement wise, we have about $2M in investments (mainly cash, 401k's and index funds).

Back to the business. From a valuation perspective, similar businesses are selling for about 4-6 times adjusted EBITA. We're on the radar of some PE firms, so it's probable we can get the top end. That values the business in the $12-$15M range. Company has about $1.5M in debt from some smaller acquisitions and most everything is depreciated over the years - so call it $11.5 - 13.5 pre-tax. Cap Gains of 28% ($3.2-3.8) leaves $8.3 - $9.7M.

So....the question is: Am I better off selling and investing the $9M or keeping the business and pulling out about $1.2 -$1.4 each year (pre-tax) in salary and dividends? I'll start another thread in the other forum about "how to invest $10M", so as not to cross over that line - but it's definitely part of the "do i sell" equation.

Thanks for the advice!
My wife works for a guy in a similar situation though a bit younger and a bit smaller. He occasionally mentions selling and gives him reality check that there is no way he could live his current lifestyle if he sold. Big house. Lots of new cars. Expensive boats. Beach condo, etc.

So you are looking at a choice of $9 million one time cash inflow vs pre tax annual income of $1.2M-$1.4M or approx 12-15% a year pretax. From a purely financial perspective 12-15% is a great return. If you sell you can probably safely pull "only" about $300k per year (maybe a little less than that by the time you take off capital gains from the $9 million)

4-6 times EBITDA doesn't strike me as a lot, but small business often don't command high premiums. To the extent it grows more you may get a higher multiple if your company is bigger.

On the flip side, the economy could tank tomorrow and the value of your business decreases.

It really comes down to:

1. Are you really itching to get out and find work no longer enjoyable ?
2. Are you willing to live on substantially less income than you are getting now ?
3. Do you have some sort of idea what you will do in retirement that is consistent with #2?

Post Reply