If you’re a business owner who’s considering selling your company, you might be disappointed with the low offers from potential buyers. In fact, according to a recent analysis of 20,000 business owners who used The Value Builder System, the average offer is just 3.7 times your pre-tax profit. This might tempt you to hold on to your business for as long as possible and “milk it” for all it’s worth. However, this “Just Milk It” strategy comes with significant risks that you should consider before making any decisions.
- You Retain All the Risk
One of the biggest downsides of holding on to your business is that you’ll retain all the risk. As an entrepreneur, you may be optimistic about the future, but economic cycles can be unpredictable. If the next five years are bumpy for your industry or market, you could face serious financial challenges. By selling your business, you can transfer that risk to the buyer and use the proceeds to invest in other opportunities.
- Your Brain’s Disk Space is Limited
As a business owner, your brain is constantly occupied with thoughts about your company. Even when you’re trying to relax or enjoy some downtime, your mind is running like an antivirus software. This can affect your ability to fully enjoy your personal life. By selling your business, you can free up mental space and focus on other aspects of your life.
- Capital Calls Can Limit Your Profits
If you’re considering the “Just Milk It” strategy, you might think that you can pull your profits out in the form of dividends and earn the same amount of cash as you would from a sale. However, if your business requires significant capital investments, you’ll need to put a lot of your profits back into the business to keep it running. This can limit the amount of cash you can take out each year and make it difficult to generate a substantial income.
- Tax Treatment Can Affect Your Profits
Depending on your tax jurisdiction, the sale proceeds of your business may be more favorably treated than income you would earn from the “Just Milk It” strategy. You might have to pay yourself two or three times as much as the net income from a business sale to make up the difference in tax treatment. This can significantly reduce your profits and limit your financial freedom.
- You Can Get a Higher Offer
Finally, you should consider that you may be able to attract a higher offer than three or four times your pre-tax profit. Companies with a high Value Builder Score of 80 or more can attract offers that are, on average, 6.1 times their pre-tax profit. Some businesses can even attract double-digit multiples. By focusing on increasing your Value Builder Score and attracting multiple buyers, you can increase your chances of getting a higher offer.
Conclusion
The “Just Milk It” strategy might seem like a good way to hold on to your business and generate income for years to come, but it comes with significant risks. You’ll need to shoulder all the risk, limit your personal and financial freedom, and face significant tax implications. By selling your business, you can transfer the risk to the buyer, free up mental space, and potentially earn a higher offer. If you’re considering the “Just Milk It” strategy, make sure to consider these risks carefully and seek the advice of a professional.
