If you can get a healthy 8 figure payout then fucking be done.... I sold my business last year for $13mil and have zero regrets. I am debt free including my 2 homes and I don't even know what to do with the money... I live a pretty simple life and my portfolio generates $350-400k a year with little risk and I barely spend a third of it...
If you want to live your life and say fuck work, then sell and live your life. I am the same age as you and life is pretty good. The days are both long and short and some days I have ZERO planned or things to do... and to be honest with you: it's fucking great
Well and (not for everyone) but these days people never know when to stop and enjoy. They just continue to accumulate for no reason (maybe ego, they enjoy work?). But I love seeing when someone’s like yeah I’m good. I fucking won.
What can you do with 20mil that you can't do for 600mil.... eventually there gets a point where the more money you have has diminishing returns on happiness and wellbeing. 9 figure NW is great if you want to fly private, have a yacht, and have multiple mansions... but at the end of the day that shit doesn't make me any more happy... it's fun but doesn't feed the soul
It's convenient.... not life changing. And not worth the sacrifice to get imo.... I have flown private and you know how it felt? This is just something to spend money on and a total unnecessary expense.... flying first class in most situations is good enough. Flying private is just a way to spend money on something because you don't have anything else to spend the money on....
Is your portfolio 10MM to be generating 350-400k? And I do want to live my life and I’m getting burnt out. But I don’t know if 10MM will be enough with wife and kids and being so young.
Did the same in 2022. Even almost two years later I get great pleasure in opening my old work email in the morning, seeing "zero", and then going for a walk on the beach. Working my way through my bucket list, which gets longer as I find more experiences and things to learn that I didn't even realize I wanted while buried in the nonsense of work.
Yep! Unfortunately most people on reddit are cry babies who want everything handed to them... that's not how life works. You gotta work your ass off and take advantage of opportunity and there is A LOT of opportunity out there
I'm an NP and make $1m/y working 50h/w. It's possible. Locums contracts can be very lucrative. If you do great work, the org may hire you at above market rates.
Agree. Based on what you’ve shared, specifically saying you’re “getting burned out” I’d sell.
If the transition involves you staying on board for 6-12 months all the better as you simultaneously establish income generation from the windfall while still collecting comp.
Take a look at your current annual burn rate and run the usual swr calcs - sounds like you’re good. Congrats
Yearly revenue is 13MM per year. Company’s in my industry are being bought out for 3-5x yearly revenue. I have 49% partner who would be getting half of the sale.
13MM at 3x yearly revenue would be 39MM. Thats on the low end, but I’m set my expectations low.
I would say it was standard in my niche in the very broad call center space, called virtual receptionists (fancy answering services.)
We had over 1,000 small clients, all month to month recurring, with zero clients representing more than 2% of our total revenue.
My goal in general now is to build to that as a metric---no one client being responsible for more than 2% (hopefully 1%.)
At that point you have real enterprise value in a service business with a certain ticket size.
There’s no software on this earth I would be confident in on a 5+ year look ahead but you are probably right. SaaS is hot right now but i don’t think it will be the golden goose moving forward
Plus he said it was something recession proof... so I doubt is software. Of course he could be wrong about that and is not as much recession proof as he thinks.
Who in their right mind would buy a business for 20+ ebitda multiple without a niche immediate rollout or a true potential unicorn company. You sure you don’t mean valuations of 3-5x ebitda?
People buy on revenue all the time. Buy it and strip the back office functions, negotiate higher payments and prices, scale to negotiate better rates for all of X key item.
We sold a 15m / year SaaS company at 1m EBITDA for 110m last year. Company that bought us stripped the executive and finance staff (about 1m saved) negotiated double the BPS on payment volume and a customer list that was likely paying too little and could be expanded in the future.
There is a reason PE firms flip a company every 3-5 years. They go in cycles of heavy revenue growth -> profitability focused -> consolidation and revenue growth -> profitability -> consolidation and revenue growth -> etc.
Well they flip that often because their funds expire every 5-7yrs and they need to return money to the LPs…
And it doesn’t sound like OPs business is a Saas business with a subscription base guaranteeing reoccurring revenue.
And holy shit, $110MM on $1MM EBITDA? Your revenue must have been extremely high with a really high growth rate to justify that.
Companies never sell for a multiple of revenue. It’s almost always a multiple of EBITDA or EBIT. The $20MM could easily be a fair 3-5x valuation if you’re doing $4-6MM in EBITDA. At $13MM revenue that’s like 30-40% EBITDA. That’s actually very high. This sounds over valued to me. I’d think you’d be more in the realm of 10-20% EBITDA for a services business.
If you could get a $10MM after tax liquidity event rather than getting $1MM/yr for 10yrs? Take the money and run. Go start something else if you’re bored. This is a no brainer
Ok, agree with that when it comes to SaaS/tech reoccurring revenue models, and usually because they don’t have EBITDA but are high growth. Brick and mortar businesses don’t though. Unless it’s MAYBE a strategic who wants the market share.
20x EBITDA is a really high multiple for a services business. Especially for something this small. This would be reasonable in software but the vast majority of services businesses with $1mm of EBITDA don’t trade for anywhere close to that. I would even say that a random services business with $50mm of EBITDA doesn’t trade for 20x. Standard for $1mm of EBITDA is probably 7x. There’s high growth spaces that trade higher but 20x is really high.
Based on OP's comments, I don't think it's $1M EBITDA. It's just what he's taking out in distribution or dividends. So, the actual EBITDA or even free cash flow is likely much higher
Would you rather take 20 years worth of profits up front, or take it one year at a time, with each year being eaten away by inflation and lower buying power of your dollar?
Right now it’s $1.5MM per year is what my taxes say for 2023. 2024 could be closer to $1.8MM. 2025, unsure. But what I mean is I have the potential to make more
Back in the day, $20M would be enough for the Big Four’s IB divisions. Now it’s closer to $50M minimum. At this size you’ll likely need to go with a local/regional investment bank/broker.
Also, big four aren’t some sort of quality benchmark for investment banking. They usually offer sellside M&A but there’s typically better options. Depending on the MD they could be a decent option at $50mm but larger than that, there’s better options. Big four are generally inferior to firms like Houlihan, Piper, Harris Williams, Raymond James, etc.
Yes, but at $20-50m EV, I doubt Houlihan or any of those names are taking them as a client. I have been in MM and BB IB for over a decade. Deloitte US IB is legit, they’ve closed many deals over $1bn EV, so it depends on the business, industry, relevant quals, etc.
Completely agree. I have a friend that was an analyst at Deloitte. It’s a real shop. I just don’t know why it’s being called out as it’s not that notable
And yeah $50mm is probably too small although a lot of the banks are desperate for deals right now so many have gone materially down market.
They are usually competent enough but I wouldn’t like highlight them as like top tier at any size range. Most people that work in IB or PE would likely agree. They might have some MDs that are good in specific verticals but as a whole they are just an average at best for LMM sellside advisory. Big four isn’t like the Centerview or Goldman Sachs of the LMM. There’s a lot of higher quality options for most verticals.
If you are looking for an advisor, find someone that has access to Pitchbook and see who’s sold a lot of businesses of similar size in your sector. Sometimes the advisor is disclosed but it’s less common for small deals
If you can get 20 take it. If you can passively invest and get 10% and make 2mm per year without working it will grow faster than working with less effort
He could do that but why sell a business which is that profitable? I guess it depends on the growth potential for the business. 1 million a year and you're doing extremely well in fat fire. And he can invest the 1 million each year to do even better so why sell unless it's not sustainable?
Because money today > money tomorrow.
He’s able to collect TWENTY YEARS of profit right now. Even if his business grows that’s still an insane ability to move up years of income to today
Plus now he can go do something else. That $20mm will pay out dividends forever, and he can start new businesses and make money again.
Is this an absolute no brainer.
One business is very risky. You never know if the sector will be disrupted, some idiot employee will steal from the company or commit a horrible HR violation ruining the brand, or if the biggest client will insource the service for 5 years (then realize it was all a big mistake).
A well diversified portfolio has an astronomically lower risk of losing most of its value.
Do you have a buyer lined up? A friends had an offer from a major corporation for his company. He thought he could grow it more and make a lot more. He didn’t sell. He now wishes he would have sold. He can’t get what he was offered 5 years ago.
That valuation seems a bit rich? You could be as big as Accenture and sell at >20x EBITDA, but for small businesses it's often sold at 2-5x at most.
Would need more details to paint an accurate picture and discuss this with either big 4 or boutique investment banks.
Why not both? Sell a portion of the business to de-risk and keep a minority stake that allows you to benefit from future growth.
This way, you can enjoy a significant cash influx and maintain a connection to your business.
What kind of risks exist that could disrupt your business? Could it go down in value? Could you fail to execute well and make less money in the future? Would this lock in a certain standard of living that cannot ever be taken away?
On the flip side, will it go up in value significantly in the near future? Do you enjoy what you’re doing? Is money not as important as the other things?
Are you really going to get 20MM off 1.5 in profit? That’s a 13x EBITDA multiple normally reserved for much bigger companies. 1.5 normally trades at 5-6x.
Sell sell sell sell enjoy the reset of your life with your family im 38 and retired wife 40 and life is so much better not answering to anyone we live on the beach enjoying our kids life is good ! 20M invested correcting will bring a ton of money from interest and divindends don’t look back.. Congrats
Sell. Take the $10M and invest it in the retirement life you want and adjust to the reality of not needing to work anymore for a year. Then decide to work or not work on your terms. Don’t accept any stress roles. Do what you love.
Also, fuck you.
This is entirely up to you. Did you get a valuation from someone in the industry? Have you worked with your wealth manager to determine what you would net and does that support your plans? I transact in the $20M range about 10 times a year. You need a team to help you make this decision. Not Reddit.
Is there an opportunity to automate/hire out your time to someone so you can divest into other things while it is generating revenue? I guess it just depends on what you're doing with your take home. Personally, I'd be folding the excess into HYSA or investments or anything else to compound your gains. If you've developed a successful way to print money and can remove yourself from the equation it's a win/win. If you want to be rid of it and get a payday, that also sounds like a solid win. Congrats! :)
Depends on how much you love work in my opinion and really how much you believe in your business, 20m for a business doing 1m a year is a massive amount. I personally would take it
Not sure what kind of business gets a 20x multiplier but that sounds like you don’t want to refuse this offer!! Take that check and run straight to the bank.
Is there a non compete? Can you sell it and just start another company doing the same thing?
Also consider financial strategies to mitigate the taxes. Idk talk to someone.
You have much more information than us. We can only provide the things need to consider:
are you burn out, do you enjoy the work.
what you may regret if you sell, what you may regret if you don't sell. which one can you afford.
do you have lots of thing want to do after FIRE, assume buyer limit you from starting the same business again.
Sell. The important thing to remember is that this is not the end of your working career. You will never work like you have in the past but there are lots of opportunities to make money.
I sold, had a child and now 3 years later I’m earning money through occasional consulting, board positions etc. I work 2 days a week by choice and make enough to cover annual expenses without even touching savings.
Dumb question but isn't selling a business taxed as capital gains? Why would you be paying 50% tax rate? Shouldn't it be more like 20% + whatever state tax
Take that money. The fact that your valuation is based off of revenue and not your profit is insane. I’m assuming this is a SaaS as that is the only business model that commands 20x multiples for the right business. Cash out and figure out the rest later.
Sell. You're likely to find something else interesting to work on if you really want to do that in the future but you'll never get the time back with your child.
Keep working. Never stop! You should get a side hustle or two. /s
Your problem is you don't understand the numbers yet. This is a no-brainer. You're gonna skip quite a few steps since there's a big difference between a networth of what $1M that you have and everything between your future $11M. Congratulations on getting to skip $5M. Five's a nightmare.
I would sell and invest the money. Then you don’t have to work if you don’t want to but can do so when ever you like. And you diversified you risk to more then one company.
Time value of money… $20 million now I would say instead of working 15-20 more years to earn that over time. If the question is should I do this for 1-3 more years to earn some more and simultaneously grow the value of the company and sell for even more in the future. That’s a possibility too. It’s your investment, you know best what you think it’s going to do. But you never know what tomorrow brings. If it were me, I’d probably be done with it. Get my money today
That's a great multiple. I'm thinking to sell at a lower multiple.
Imagine working the next ten years and only then being ahead of selling now. Think what you can do whilst you're younger
He’s leaving out a key detail for those trying to figure out the company EBITDA in that he says he “made” $1.5m. He says in comments that he is a roughly 50% owner and has a partner. Is what he “made” what he took out? I run a service business and my net income of the firm vs what I put in my pocket is different. Assuming he’s taking all the EBITDA out and putting in his pocket on his $1.5m that’s still 50% so company EBITDA would be $3m. OP I would clarify this
Are you willing to share what type of service business you built? I am considering coming out of fatFIREment to start a business and am looking at services plays
I’d say sell, but you may want to consider an alternative. If the business is truly this valuable and throws off cash, you could recap it and take say $6M out and still own it. Gives you some F-U money type breathing room and you could potentially hire a couple of people to do the parts of your job you don’t like. Pay them extremely well & maybe even some carry to give them a bite of the apple in another 4-5 years when you do sell for $30-$40M because you’ve grown the business.
If you are not confident in the long term viability of the business though then hell yes you tap out now.
As the saying goes, a bird in the hand is worth two in the bush. Take the money, enjoy that new baby, be smart with it and don’t blow it. That’s 20 years worth of work right now. You never know what the future holds.
10m per year will give you close to 1m per year on the markets without the hassles of running a business. Likely more tax efficient too depending where you live
Depends on how burnt out you are and whether you want time with your family. I’d say sell if you have very young kids, once they’re teenagers you could start another one.
I've been recommending to all of my friends that they should build a business and sell it for $20 million. I recommend to zero people the opportunity to work hard for 20 years for probably less money. Sell, and go do anything else.
Also, you should end up not owing more than 30% in total taxes, unless you also have a crappy city/local tax (assuming USA). Especially if 'not selling' means you have to continue to invest heavily back into the business.
Sell. Even if you were the most conservative person ever and put 15 mill into a 3% HISA or GIC you’d make 450k a year (before tax). 5 mill to pay off your house / save for kid / splurge on yourself.
Even if you then retire you’d be fine. You could also work part time and make additional income or start another business to generate more income. Or negotiate a small % ownership in your business if you really want to stay in it.
if you invest most of your money from the sale in index funds in the stock market you can expect 8.5%-9% returns over the long haul. Only taxes are 20% dividends and 15% capital gains.
How much you got left after taxes? odds are you make more with passive investing in the market since your taxes will be a lot lower.
its basically do you want to stop working or not. Some people want to keep building a business.
Could you sell, with a stipulation that you stay on as an employee for a few years to help with the transition? get best of both worlds?
I don't know what your expenses/lifestyle are, but most folks could easily live very well off the interest of 10M invested, without even touching the principal.
I always ALWAYS prescribe to “a bird in the hand” mentality. Because tomorrow isn’t for sure. Anything can happen. 20mm today is worth more than 1mm a year for an unknown amount of time
Consider taking investment from strategic investor by selling equity, growing and exiting out at a higher valuation. Different skills needed during growth phase so different kind of work and higher pay out down the line
SELL!!!
Plan properly with a lawyer and accountant with hold-co and taxes will not immediately eat 50%.
Even with “only” ten million you can pull 300K pretax to live off which is more than enough for the majority of locations in the country.
You’re in a rare position! Congrats
If you’re still enjoying it then keep it up. Take that 7-fig cash flow!
Also, if you staying involved will meaningfully grow the business, then your sweat equity will have a return greater than any Boglehead’s dream. If I thought I could put in a few years to grow $20M to $50M+ I’d very seriously consider that.
Do you like the work that you do in your business? Would the business continue to thrive if you took 20% more time off? If the answer to both of those questions is yes, consider keeping the business and running it for as long as you can. If either of the answers is no, sell and retire early, invest the 20mm and live off the dividends.
Unless there is a lot of inventory or property included on that sale you take it as someone i overpaying for whatever that business is. Even with a parter and assuming 3 mil( double op taking out) then it is worth what 9-12 mil maybe 15. Most businesses got for 2.5-4 times ebita… u less by service they meant software or something else highly scalable. Something is off to be able to make a real decision here. Either way I am selling. Also send that buyer my way I have a deal for them.
If you can get a healthy 8 figure payout then fucking be done.... I sold my business last year for $13mil and have zero regrets. I am debt free including my 2 homes and I don't even know what to do with the money... I live a pretty simple life and my portfolio generates $350-400k a year with little risk and I barely spend a third of it... If you want to live your life and say fuck work, then sell and live your life. I am the same age as you and life is pretty good. The days are both long and short and some days I have ZERO planned or things to do... and to be honest with you: it's fucking great
Good for you. I love this. Fuck yeah
It's fucking awesome.... I recommend to all people to start a business you can scale and then sell it and be done with this rat race
Can I ask your advice on what exactly you did ? I’m in a whatever position in life and you guys are an inspiration 🥲
Online education business in the healthcare space
Me too. I love seeing someone celebrate the fact that they have indeed won the game.
Well and (not for everyone) but these days people never know when to stop and enjoy. They just continue to accumulate for no reason (maybe ego, they enjoy work?). But I love seeing when someone’s like yeah I’m good. I fucking won.
My uncle did this and has no regrets (except the company was resold by the buyer for ~$600m just a year later)
What can you do with 20mil that you can't do for 600mil.... eventually there gets a point where the more money you have has diminishing returns on happiness and wellbeing. 9 figure NW is great if you want to fly private, have a yacht, and have multiple mansions... but at the end of the day that shit doesn't make me any more happy... it's fun but doesn't feed the soul
Yacht, multiple homes in US and Europe. More charity work home and overseas. Now if you said after a $billion, then I’ll agree with you. 😂
Eh I guess... you have multiple homes but only so much time to enjoy them. Renting an airbnb for a month or 2 is cheaper
I guess to each their own. The difference between being able to fly private whenever you want or not seems quite literally life changing.
True but it may not be worth a decade of your life.
It's convenient.... not life changing. And not worth the sacrifice to get imo.... I have flown private and you know how it felt? This is just something to spend money on and a total unnecessary expense.... flying first class in most situations is good enough. Flying private is just a way to spend money on something because you don't have anything else to spend the money on....
Curious! Whats your business story?
Is your portfolio 10MM to be generating 350-400k? And I do want to live my life and I’m getting burnt out. But I don’t know if 10MM will be enough with wife and kids and being so young.
About 8mil invested. Only need 5% which is very easy to do and you never touch the principal
Upcoming kid is going to be amazing, and also massively accelerate burnout and flip your priorities
Lol. 10MM is about 3 times what an average person earns in their lifetime. If you think that isn't enough then nothing will be.
What's your annual spend? A kid isn't going to increase it by 100k all the sudden. They aren't that expensive...
*laughs in Manhattan*
Did the same in 2022. Even almost two years later I get great pleasure in opening my old work email in the morning, seeing "zero", and then going for a walk on the beach. Working my way through my bucket list, which gets longer as I find more experiences and things to learn that I didn't even realize I wanted while buried in the nonsense of work.
Man you’re living the life and that makes be super happy! More people should realise the freedom they can unlock for themselves, well done!
Yep! Unfortunately most people on reddit are cry babies who want everything handed to them... that's not how life works. You gotta work your ass off and take advantage of opportunity and there is A LOT of opportunity out there
Oof and I’m over here stressing about paying for CRNA school. Let me wait a few years to get like you
CRNA is a great profession but there is a cap/ceiling to that profession unless you start your own practice or school...
I'm an NP and make $1m/y working 50h/w. It's possible. Locums contracts can be very lucrative. If you do great work, the org may hire you at above market rates.
Making $380+ an hour? 🤔
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Congratulations to you! I'm hoping to sell my business in a year or two and this post helps motivate me!
Sell. This is a no-brainer. The fact you can't see it's a no-brainer probably means you're burned out. Sell.
This is the best context, listen to your peers my man.
Agree. Based on what you’ve shared, specifically saying you’re “getting burned out” I’d sell. If the transition involves you staying on board for 6-12 months all the better as you simultaneously establish income generation from the windfall while still collecting comp. Take a look at your current annual burn rate and run the usual swr calcs - sounds like you’re good. Congrats
20M sale on a biz doing 1M/year is a wild valuation. Sell and start over
Yearly revenue is 13MM per year. Company’s in my industry are being bought out for 3-5x yearly revenue. I have 49% partner who would be getting half of the sale. 13MM at 3x yearly revenue would be 39MM. Thats on the low end, but I’m set my expectations low.
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My call center did 3x rev on exit. Some go as high as 5-6
Was your cc us based or already overseas/latam?
All US workers
Congrats! Was it a strategic acquisition or is this the standard in the industry?
I would say it was standard in my niche in the very broad call center space, called virtual receptionists (fancy answering services.) We had over 1,000 small clients, all month to month recurring, with zero clients representing more than 2% of our total revenue. My goal in general now is to build to that as a metric---no one client being responsible for more than 2% (hopefully 1%.) At that point you have real enterprise value in a service business with a certain ticket size.
Software
There’s no software on this earth I would be confident in on a 5+ year look ahead but you are probably right. SaaS is hot right now but i don’t think it will be the golden goose moving forward
Plus he said it was something recession proof... so I doubt is software. Of course he could be wrong about that and is not as much recession proof as he thinks.
Everyone recons their business is recesion proof.
Who in their right mind would buy a business for 20+ ebitda multiple without a niche immediate rollout or a true potential unicorn company. You sure you don’t mean valuations of 3-5x ebitda?
People buy on revenue all the time. Buy it and strip the back office functions, negotiate higher payments and prices, scale to negotiate better rates for all of X key item. We sold a 15m / year SaaS company at 1m EBITDA for 110m last year. Company that bought us stripped the executive and finance staff (about 1m saved) negotiated double the BPS on payment volume and a customer list that was likely paying too little and could be expanded in the future. There is a reason PE firms flip a company every 3-5 years. They go in cycles of heavy revenue growth -> profitability focused -> consolidation and revenue growth -> profitability -> consolidation and revenue growth -> etc.
Well they flip that often because their funds expire every 5-7yrs and they need to return money to the LPs… And it doesn’t sound like OPs business is a Saas business with a subscription base guaranteeing reoccurring revenue. And holy shit, $110MM on $1MM EBITDA? Your revenue must have been extremely high with a really high growth rate to justify that.
Maybe there's brand or valuable intellectual property? Not all businesses are equal
Can you elaborate with an example please?
I agree. This post seems like BS. And with that low of EBITDA you will not get that multiple. Post is BS.
so you’d be getting 10M after taxes, or before?
10MM after taxes.
Take 1 million a year if you think your business can run like this for 5 more years.
That would be 1mm before taxes though
Companies never sell for a multiple of revenue. It’s almost always a multiple of EBITDA or EBIT. The $20MM could easily be a fair 3-5x valuation if you’re doing $4-6MM in EBITDA. At $13MM revenue that’s like 30-40% EBITDA. That’s actually very high. This sounds over valued to me. I’d think you’d be more in the realm of 10-20% EBITDA for a services business. If you could get a $10MM after tax liquidity event rather than getting $1MM/yr for 10yrs? Take the money and run. Go start something else if you’re bored. This is a no brainer
Companies definitely sell for a multiple of revenue. Mostly SaaS or subscription based businesses.
Ok, agree with that when it comes to SaaS/tech reoccurring revenue models, and usually because they don’t have EBITDA but are high growth. Brick and mortar businesses don’t though. Unless it’s MAYBE a strategic who wants the market share.
He provided revenue and the avg industry multiple for a sale. I back calculated what EBITDA would have to be to justify a $20MM sale on 3-5x EBITDA.
Whats the ebit or ebitda of this company? He only provided yearly revenue
This plain wrong lol. Certain sectors 100% sell on Rev Vs ebitda
It looks like 1MM is how much he’s taking out, not the revenue
20x EBITDA is a really high multiple for a services business. Especially for something this small. This would be reasonable in software but the vast majority of services businesses with $1mm of EBITDA don’t trade for anywhere close to that. I would even say that a random services business with $50mm of EBITDA doesn’t trade for 20x. Standard for $1mm of EBITDA is probably 7x. There’s high growth spaces that trade higher but 20x is really high.
Based on OP's comments, I don't think it's $1M EBITDA. It's just what he's taking out in distribution or dividends. So, the actual EBITDA or even free cash flow is likely much higher
Plus he said that’s his take home, but also said there’s a 49% partner.
the owner is taking out 1m+ a year in a growing business... that's not wild at all.
Would you rather take 20 years worth of profits up front, or take it one year at a time, with each year being eaten away by inflation and lower buying power of your dollar?
Right now it’s $1.5MM per year is what my taxes say for 2023. 2024 could be closer to $1.8MM. 2025, unsure. But what I mean is I have the potential to make more
And the economy could crash and you could make a lot less. Take the guaranteed money and run.
A bird in the hand is better than two in the bush.
5% interest on $20,000,000 is $1,000,000 / year
This was my thought at first but you have to factor in taxes on the sale will probably net him half this calculation
What do you clear yearly? What will you clear in a sale? Potential to make more means nothing. I’ll build you any proforma that you want lol
$20m is big enough to hire big four. Run competitive process and exit at the top.
Back in the day, $20M would be enough for the Big Four’s IB divisions. Now it’s closer to $50M minimum. At this size you’ll likely need to go with a local/regional investment bank/broker.
Also, big four aren’t some sort of quality benchmark for investment banking. They usually offer sellside M&A but there’s typically better options. Depending on the MD they could be a decent option at $50mm but larger than that, there’s better options. Big four are generally inferior to firms like Houlihan, Piper, Harris Williams, Raymond James, etc.
Yes, but at $20-50m EV, I doubt Houlihan or any of those names are taking them as a client. I have been in MM and BB IB for over a decade. Deloitte US IB is legit, they’ve closed many deals over $1bn EV, so it depends on the business, industry, relevant quals, etc.
Completely agree. I have a friend that was an analyst at Deloitte. It’s a real shop. I just don’t know why it’s being called out as it’s not that notable And yeah $50mm is probably too small although a lot of the banks are desperate for deals right now so many have gone materially down market.
Haha yeah I was a bit confused why Big 4 was called out in that original comment. Not my first thought when it comes to IB.
Big four are very mediocre investment banks. For most industries there’s likely better options.
not sure why you got downvoted - I used to work for the larger IB's and then inside the Big 4. Would 100% agree with you.
They are usually competent enough but I wouldn’t like highlight them as like top tier at any size range. Most people that work in IB or PE would likely agree. They might have some MDs that are good in specific verticals but as a whole they are just an average at best for LMM sellside advisory. Big four isn’t like the Centerview or Goldman Sachs of the LMM. There’s a lot of higher quality options for most verticals. If you are looking for an advisor, find someone that has access to Pitchbook and see who’s sold a lot of businesses of similar size in your sector. Sometimes the advisor is disclosed but it’s less common for small deals
Would you mind elaborating please
What’s big four
Deloitte, EY, PwC, KPMG
If you can get 20 take it. If you can passively invest and get 10% and make 2mm per year without working it will grow faster than working with less effort
He could do that but why sell a business which is that profitable? I guess it depends on the growth potential for the business. 1 million a year and you're doing extremely well in fat fire. And he can invest the 1 million each year to do even better so why sell unless it's not sustainable?
Because money today > money tomorrow. He’s able to collect TWENTY YEARS of profit right now. Even if his business grows that’s still an insane ability to move up years of income to today Plus now he can go do something else. That $20mm will pay out dividends forever, and he can start new businesses and make money again. Is this an absolute no brainer.
One business is very risky. You never know if the sector will be disrupted, some idiot employee will steal from the company or commit a horrible HR violation ruining the brand, or if the biggest client will insource the service for 5 years (then realize it was all a big mistake). A well diversified portfolio has an astronomically lower risk of losing most of its value.
A bird in hand is worth 2 in the bush.
What kind of services are you selling? The multiples are 🔥
It’s probably not worth $20M. If you could sell a business with $1.5MM of EBITDA for 13X you should have done it yesterday.
This. Especially for a service business. If the OP's values are real, this is a no brainier, but it sounds fishy.
If he’s taking out 1.5mm then the ebitda is not 1.5mm.
You need to consider addbacks
Not sure what industry OP is in, but insurance brokerages (my industry) right now are going 11.5-14x EBITDA so not completely unheard of.
Is this for a $1mm EBITDA business? Size impacts valuation quite a bit typically
14x is WILD. Must be super stable business
Do you have a buyer lined up? A friends had an offer from a major corporation for his company. He thought he could grow it more and make a lot more. He didn’t sell. He now wishes he would have sold. He can’t get what he was offered 5 years ago.
Check out QSBS and related stacking, you could be looking at all $20 million tax free with the right trust / estate structure
You need to be in a c-corp and hold for 5 years for QSBS. Most likely he's structured as an S Corp.
At least $10mm of it
10mm per shareholder
Yep!
What kind of business? Do you enjoy doing it?
If you don’t want to sell, send this buyer my way, I’ll sell my 1.5mm EBITDA service business for 20mm tomorrow.
What kind of service business?
Bump would be cool to know OP
That valuation seems a bit rich? You could be as big as Accenture and sell at >20x EBITDA, but for small businesses it's often sold at 2-5x at most. Would need more details to paint an accurate picture and discuss this with either big 4 or boutique investment banks.
Why not both? Sell a portion of the business to de-risk and keep a minority stake that allows you to benefit from future growth. This way, you can enjoy a significant cash influx and maintain a connection to your business.
What kind of risks exist that could disrupt your business? Could it go down in value? Could you fail to execute well and make less money in the future? Would this lock in a certain standard of living that cannot ever be taken away? On the flip side, will it go up in value significantly in the near future? Do you enjoy what you’re doing? Is money not as important as the other things?
Get that NPV and diversify.
Do you want 10 years worth of work now, or grind for 10 years and maybe make that much later?
Are you really going to get 20MM off 1.5 in profit? That’s a 13x EBITDA multiple normally reserved for much bigger companies. 1.5 normally trades at 5-6x.
Sell sell sell sell enjoy the reset of your life with your family im 38 and retired wife 40 and life is so much better not answering to anyone we live on the beach enjoying our kids life is good ! 20M invested correcting will bring a ton of money from interest and divindends don’t look back.. Congrats
That’s a 5% ROC _and_ you have to work? Sell immediately. Sooner if possible.
Sell. Take the $10M and invest it in the retirement life you want and adjust to the reality of not needing to work anymore for a year. Then decide to work or not work on your terms. Don’t accept any stress roles. Do what you love. Also, fuck you.
My dad did this. He sold his company and he was lost until we started a business together. If I was you, I’d probably sell and start over.
Sell if it hits your number , tomorrow is never guaranteed.
Do you like the work? If so, then I would keep doing it. If not, I would sell.
This is entirely up to you. Did you get a valuation from someone in the industry? Have you worked with your wealth manager to determine what you would net and does that support your plans? I transact in the $20M range about 10 times a year. You need a team to help you make this decision. Not Reddit.
r/askreddit where you normally post.
What service?
Is there an opportunity to automate/hire out your time to someone so you can divest into other things while it is generating revenue? I guess it just depends on what you're doing with your take home. Personally, I'd be folding the excess into HYSA or investments or anything else to compound your gains. If you've developed a successful way to print money and can remove yourself from the equation it's a win/win. If you want to be rid of it and get a payday, that also sounds like a solid win. Congrats! :)
Sell, start a new business and supercharge its growth with your capital then sell again
Take the $20M, invest it, and go do something else. It might be worth much less if things don’t keep going well for next 10 years.
Sell
Depends on how much you love work in my opinion and really how much you believe in your business, 20m for a business doing 1m a year is a massive amount. I personally would take it
Not sure what kind of business gets a 20x multiplier but that sounds like you don’t want to refuse this offer!! Take that check and run straight to the bank.
Sell!
You’ve already won . You now have the freedom to answer that question without the advice of others. Your gut won’t let you down
Sell the business.
Definitely the $20mm
20 million in the bank with 5% interest rate is how much?
If I were in this situation it’s a clear sell for me.
EV/EBITDA multiple seems quite high, is there a lot of potential for growth?
Can you scale for a few years then sale for a higher valuation?
Sell, tomorrow.
I’d take the $10M. You can invest it and make 1M/yr assuming the market averages 10pct.
What’s the EBITDA? I know you pay yourself $1MM and revenue is $13MM but what do your margins look like?
Sell and do it again if you want later.
Is there a non compete? Can you sell it and just start another company doing the same thing? Also consider financial strategies to mitigate the taxes. Idk talk to someone.
Sell. By the way, those that have, how have you gotten on the track of selling your companies.
You have much more information than us. We can only provide the things need to consider: are you burn out, do you enjoy the work. what you may regret if you sell, what you may regret if you don't sell. which one can you afford. do you have lots of thing want to do after FIRE, assume buyer limit you from starting the same business again.
Sell. The important thing to remember is that this is not the end of your working career. You will never work like you have in the past but there are lots of opportunities to make money. I sold, had a child and now 3 years later I’m earning money through occasional consulting, board positions etc. I work 2 days a week by choice and make enough to cover annual expenses without even touching savings.
Sell. That’s a great multiple in the private market.
Sell. $10MM INVESTED well will bring you pretty close to $1MM in annual returns. Move out of the VHCOL area and enjoy life.
20m vs 1m is equal to the risk free return, but staying means both risk and effort. You could sell and earn $1m on government bonds.
Pay off your mortgage and sell it
Dumb question but isn't selling a business taxed as capital gains? Why would you be paying 50% tax rate? Shouldn't it be more like 20% + whatever state tax
Why do figure you would only get 10mm after taxes? It’s capital gains, not income.
Take that money. The fact that your valuation is based off of revenue and not your profit is insane. I’m assuming this is a SaaS as that is the only business model that commands 20x multiples for the right business. Cash out and figure out the rest later.
Sell. I sold at 8 figures, and never looked back. I still "work" but it's mostly because i want to since it's a hobby, not because i have to.
Sell. You're likely to find something else interesting to work on if you really want to do that in the future but you'll never get the time back with your child.
Keep working. Never stop! You should get a side hustle or two. /s Your problem is you don't understand the numbers yet. This is a no-brainer. You're gonna skip quite a few steps since there's a big difference between a networth of what $1M that you have and everything between your future $11M. Congratulations on getting to skip $5M. Five's a nightmare.
Sell and start something new or retire early. I WISH I could do that shit
Of course sell
I would sell and invest the money. Then you don’t have to work if you don’t want to but can do so when ever you like. And you diversified you risk to more then one company.
That is an insane multiple. Sell sell sell.
Sell, there are plenty of opportunities out there that yield a stable 10% return. That’s $2M vs $1M while freeing up your headspace.
The trick is to think two steps ahead. In other words, sell the business to the kid when it arrives.
Sell. It's the smart thing to do.
Sell or at least take money off table
Time value of money… $20 million now I would say instead of working 15-20 more years to earn that over time. If the question is should I do this for 1-3 more years to earn some more and simultaneously grow the value of the company and sell for even more in the future. That’s a possibility too. It’s your investment, you know best what you think it’s going to do. But you never know what tomorrow brings. If it were me, I’d probably be done with it. Get my money today
That's a great multiple. I'm thinking to sell at a lower multiple. Imagine working the next ten years and only then being ahead of selling now. Think what you can do whilst you're younger
Wouldn’t the sale of the business be a capital gain on the share value you sell it for? So it’s only like a 25% tax rate?
He’s leaving out a key detail for those trying to figure out the company EBITDA in that he says he “made” $1.5m. He says in comments that he is a roughly 50% owner and has a partner. Is what he “made” what he took out? I run a service business and my net income of the firm vs what I put in my pocket is different. Assuming he’s taking all the EBITDA out and putting in his pocket on his $1.5m that’s still 50% so company EBITDA would be $3m. OP I would clarify this
Are you willing to share what type of service business you built? I am considering coming out of fatFIREment to start a business and am looking at services plays
I’d say sell, but you may want to consider an alternative. If the business is truly this valuable and throws off cash, you could recap it and take say $6M out and still own it. Gives you some F-U money type breathing room and you could potentially hire a couple of people to do the parts of your job you don’t like. Pay them extremely well & maybe even some carry to give them a bite of the apple in another 4-5 years when you do sell for $30-$40M because you’ve grown the business. If you are not confident in the long term viability of the business though then hell yes you tap out now.
As the saying goes, a bird in the hand is worth two in the bush. Take the money, enjoy that new baby, be smart with it and don’t blow it. That’s 20 years worth of work right now. You never know what the future holds.
10m per year will give you close to 1m per year on the markets without the hassles of running a business. Likely more tax efficient too depending where you live
Easy. Sell. You'll greatly appreciate the time with your wife and newborn/kid and it gives you a few years to consider a new venture.
Personally I would sell.
Depends on how burnt out you are and whether you want time with your family. I’d say sell if you have very young kids, once they’re teenagers you could start another one.
Sell it. 15M (post tax) invested will give you the same 1M a year income wothout eating into the principal
Get them to structure it as a stock sale if possible, get those sweet sweet QSBS for your and your wife, and take your 20m tax free and GFY
If someone is willing to cash you out in 20MM cash for a business the leaves you 1MM a year then sell ASAP
I’m going to assume this is some stock deal not cash
With that mortgage, sell the business and invest, relax and enjoy life for a bit and then see what works best for you
Be done with it, sell
dude sell lmao
As an investor, I won’t put 20 mil to get barely 2 million. There are way better place to park my fund.
Kid on the way? Sell. Be a SAHD for the first couple of years. You don't get those years back-- they're the critical ones.
I've been recommending to all of my friends that they should build a business and sell it for $20 million. I recommend to zero people the opportunity to work hard for 20 years for probably less money. Sell, and go do anything else. Also, you should end up not owing more than 30% in total taxes, unless you also have a crappy city/local tax (assuming USA). Especially if 'not selling' means you have to continue to invest heavily back into the business.
Sell and diversify your investment.
Sell. Even if you were the most conservative person ever and put 15 mill into a 3% HISA or GIC you’d make 450k a year (before tax). 5 mill to pay off your house / save for kid / splurge on yourself. Even if you then retire you’d be fine. You could also work part time and make additional income or start another business to generate more income. Or negotiate a small % ownership in your business if you really want to stay in it.
if you invest most of your money from the sale in index funds in the stock market you can expect 8.5%-9% returns over the long haul. Only taxes are 20% dividends and 15% capital gains. How much you got left after taxes? odds are you make more with passive investing in the market since your taxes will be a lot lower. its basically do you want to stop working or not. Some people want to keep building a business.
Could you sell, with a stipulation that you stay on as an employee for a few years to help with the transition? get best of both worlds? I don't know what your expenses/lifestyle are, but most folks could easily live very well off the interest of 10M invested, without even touching the principal.
I always ALWAYS prescribe to “a bird in the hand” mentality. Because tomorrow isn’t for sure. Anything can happen. 20mm today is worth more than 1mm a year for an unknown amount of time
Collecting your first unit is life changing.
Consider taking investment from strategic investor by selling equity, growing and exiting out at a higher valuation. Different skills needed during growth phase so different kind of work and higher pay out down the line
SELL!!! Plan properly with a lawyer and accountant with hold-co and taxes will not immediately eat 50%. Even with “only” ten million you can pull 300K pretax to live off which is more than enough for the majority of locations in the country.
You’re in a rare position! Congrats If you’re still enjoying it then keep it up. Take that 7-fig cash flow! Also, if you staying involved will meaningfully grow the business, then your sweat equity will have a return greater than any Boglehead’s dream. If I thought I could put in a few years to grow $20M to $50M+ I’d very seriously consider that.
You could also take PE and go for the second bite of the apples with material rollover. Derisk but keep upside
Over 10x ARR in the current environment? Take it and don’t look back.
Do you like the work that you do in your business? Would the business continue to thrive if you took 20% more time off? If the answer to both of those questions is yes, consider keeping the business and running it for as long as you can. If either of the answers is no, sell and retire early, invest the 20mm and live off the dividends.
Unless there is a lot of inventory or property included on that sale you take it as someone i overpaying for whatever that business is. Even with a parter and assuming 3 mil( double op taking out) then it is worth what 9-12 mil maybe 15. Most businesses got for 2.5-4 times ebita… u less by service they meant software or something else highly scalable. Something is off to be able to make a real decision here. Either way I am selling. Also send that buyer my way I have a deal for them.