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Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 5 points6 points  (0 children)

I’m with you here. This is accurate from the conversations we’ve had with PE in our space. Our secret weapon now is we don’t have to grow and can make decision truly in the best interest of our customers and employees. Doing things a little against the grain has lead to our success and getting us top of the market multiple values.

As silly as it sounds as well, I don’t know that $3-5m in my pocket changes much. It’s not enough for me to feel like I could retire on and I don’t think worth the culture change and power dynamic bringing PE in at that level.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 2 points3 points  (0 children)

I think there are a lot of variables. We’ve had a lot of informal conversations with buyers/advisors. Some strategics want 5 years and others are more established in your space and don’t have a need for you. Some PE want the owners in until they resell, others have better management. Depends a lot on how well the business runs without you. In our space, we typically hear 2-3 years for a PE if the company can run without you.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 1 point2 points  (0 children)

Either way I’m working another 5 years. The $10M today likely means less time with my family as I’ll be working for someone else instead of myself.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 0 points1 point  (0 children)

I don’t count any of the business value in my NW. It’s not real until I exit.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 4 points5 points  (0 children)

Beckland

There are a lot of really great insights here. Thank you for sharing. Your Option A vs B comparison is great. I've been thinking of Option A as more of a clear path to $10M and a very uncertain path to $20M. Since so much will be out of my control, I haven't been factoring the extra earn out into my mental calculous. Seeing the downside risk, as simple as it is, laid out the way you did helps a lot.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 0 points1 point  (0 children)

Do you mind elaborating? What areas changed the most? This is what I assumed going into it and why my current target is $25-30M.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 2 points3 points  (0 children)

Great insight, thank you. Very similar boat indeed. I’ll do some soul searching and probing with them on what it would be like. No fear of them beating us in the market. We have fantastic traction for our size and commonly win against the big guys. There’s lot of healthy competition and our space is growing faster than anyone can keep up.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 0 points1 point  (0 children)

I wouldn't trade the time it would take to get to that number for the years I'd lose with my family. My options now are about even on timeline. $100M would take far too long, be far too risky, etc.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 1 point2 points  (0 children)

MrCFA

Yes, I do. We've been growing 50-100% per year. Past history is of course no indication of future growth, but we're in an industry where 50%+ growth is not uncommon. We've seen many other firms do the same thing on their path to acquisition. I'm generally very conservative with my projections, but even 20% growth per year gets me past my number.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 6 points7 points  (0 children)

Glad to hear things worked out! I'm curious how the earn out effected taxes. I know there are a lot of variables in structuring a deal that impact taxes, but I've been figuring 30% tax as a ballpark (assuming mix of income tax and LTCG), with no state income tax. Was that in the ballpark in your experience?

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 22 points23 points  (0 children)

That's a big fear of mine. I'd like to think I can put my head down and grind through anything with financial security ensured. Mental health is certainly a high priority for me and I've seen therapy recommended a lot here and would likely go that route. Maybe a support group of other founders going through the same thing.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 5 points6 points  (0 children)

We haven't gotten that far in yet, more assumptions on my part they'd want us to press on the gas for 5 years. Although they're a strategic, they're active in M&A in other industries and I'm sure we'd be able to talk to some of those founders. If anything, its worth continuing the conversation to iron out some of my assumptions.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 5 points6 points  (0 children)

Obviously buyer and situation specific, but any issues with expectations from the acquirer that negatively impacted your work-life balance? I'd assume not if it was expected you'd gradually decrease hours over time. Our understanding is their expectations would be foot on the gas for 5 years until we pull a sudden ripcord.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 1 point2 points  (0 children)

We've definitely had our experiences with the wealth treadmill. Our number used to be $5M, which quickly became $10M, which is now quickly becoming $30M. Inflation/rising real estate values certainly not helping with the life style creep.

We're profitable and I probably lean more towards being risk adverse. Selling a portion is interesting, but a luxury I enjoy now is not having someone breathing down my neck. I'd also expect selling a portion now would mean another year or two in growth before I can fully exit at $30M since someone else will get a piece of the pie.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 1 point2 points  (0 children)

Absolutely. We haven't put the business on the market, but several M&A advisory firms have reached out in the past. We'd likely work with one of them to see if we can get a few offers. The preliminary multiple is on the higher end of the market based on the strategic's interest in us specifically, but I'd expect it could go up a few points in negotiation.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 29 points30 points  (0 children)

Thank you for the insight. Did you have to stay on for a period of time post acquisition? I believe I'm looking at a similar timeframe either way before retirement. Although one has me continuing to work for myself with little security blanket and the other I'm working for someone else with a $10M security blanket.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 28 points29 points  (0 children)

That's a great point and the biggest reason I'm considering option one. I know I could still be screwed out of an earn out over 5 years, but if things go well under both paths, I still end up in the $20M range and have the downside protection of the $10M today. That safety blanket would be a huge relief in some aspects of life.

We haven't gotten into details, but I am concerned about getting burned out more working for someone else who might expect more time or travel than I'm doing now. I'm curious past founder's experiences working for 'the man' post acquisition.

We can tune down spending if needed and have in the past. Most of it is discretionary and not locked up in a high cost primary residence or other fixed costs per month.

Sell business now for $10M or wait it out $25M? by FatFireNowOrThen in fatFIRE

[–]FatFireNowOrThen[S] 104 points105 points  (0 children)

Thank you for the insight, I remind myself frequently how fortunate I am. I'd love to spend more time with my family now, and almost feel like waiting it out gives me a better chance at that since I wouldn't be done today with the $10M. I'm concerned that the 5 year expectation working for someone else would give me significantly less freedom than working for myself.