TLDR
- Selling and keeping a business are both routes to financial independence. The useful question is which one gets you to your FI number sooner, and which one gives you your time back sooner.
- In one worked example, an owner whose business still needs them reaches their number in 13 years by keeping it and saving from it, and in 17 years by selling now and saving nothing more.
- In the same example, spending two more years making the business run without its owner raised the sale price from $562,500 to $750,000. The date stayed at 13 years, but the owner stopped working in the business after year two.
- If a business already pays your spending without you, keeping it may be enough on its own. One business is a concentrated asset, so count it with a margin.
Most answers to “should I sell my business” are about timing the market, cleaning up the books and finding a broker. All useful. Few of them tell you what the sale does to the one date you actually care about: the day your money pays your life without you working.
The short answer
Sell when what lands from the sale, added to what you already have invested, gets you to your FI number sooner than keeping the business would, or when keeping it costs years you don’t want to give. If the business still needs you every week, making it run without you first usually beats selling now.
One owner, three paths
Take an owner aged 45. The household spends $6,000 a month, so at a 4% withdrawal rate the FI number is $1.8 million. They have $400,000 invested. The business makes $250,000 a year for its owner, and they save $5,000 a month from it. If they disappeared tomorrow, it would run properly for about two weeks.
| Path | What happens | Years to $1.8 million | Years still working in the business |
|---|---|---|---|
| 1. Keep working it | Save $60,000 a year from the business | 13 | 13 |
| 2. Sell now | Price $562,500 (3 times profit, less 25% because it needs the owner); about $394,000 lands | 17 if nothing more is saved; 13 if other work saves $1,500 a month | 0 |
| 3. Fix it, then sell | Two more years of saving while making it run without the owner, then sell at the full 3 times: $750,000; about $525,000 lands | 13 | 2 |
Assumptions: 5% a year after inflation, a 4% withdrawal rate, counted in whole years with a year’s saving added at the end of each year. “Lands” is 70% of the price, the middle of the 60% to 80% many owners keep after earn-out risk, fees and tax. After a sale, something still has to cover the household’s spending: a job, consulting, part-time work. Path 2’s 17 years, and the last 11 of path 3, assume that work covers spending and saves nothing.
Why selling now costs years
Selling now isn’t wrong. It’s expensive, for one reason: the business still needs its owner, and a buyer prices that in. In this example the dependency discount takes $187,500 off the price before fees and tax touch it.
Path 3 is the same owner, two years later, with the same profit. The only thing that changed is how much of the business is them. The date is the same as keeping it, but eleven of those thirteen years are no longer spent running it.
The sale price is mostly decided before you list the business, by how much of it is you.
I sold a business in 2014. The lesson I’d pass on is the one in this table: buyers pay for a business that runs without you. Mine could, and that’s most of why it was worth more than a solo practice. The six levels of a service business sets out where that line sits and what each level tends to be worth.
Path 4: keep it, and let it pay you
If the business runs without you and the profit you take out covers your spending, then by this maths you may already be there, without selling anything. The owner above spends $72,000 a year. A business paying them more than that without their hours does the job a $1.8 million portfolio would.
The catch is concentration. An index fund owns thousands of businesses; you own one. A key person leaves, a competitor opens nearby, a rule changes, and the income moves. Count it, but count it with a margin, and keep building the invested pot beside it. Does my business count toward my FI number? works through both ways a business counts.
What the standard advice gets right
- Sell from strength. Buyers pay more for steady or rising profit than for a business in decline.
- Clean books. Two to three years of tidy accounts make the price easier to defend.
- Get it valued. A business broker will give you a view of your multiple, often for free. Do that before you trust any number here, including mine.
Those decide the price. The question this page adds is what the price does to your date, and whether you need to sell at all. If you do sell, work out the price you’d need first, then check whether your profit and a realistic multiple can reach it.
Run your own
Open the calculator and pick “I already own one”. Put in your profit, the multiple, how long the business runs without you, and how the price would be paid. It shows what lands and your date both ways: walk away now, or stick it out. Then move the “runs without you” dial one step and watch both dates.
Illustrative numbers, not advice. I’m not a licensed adviser. Valuation, tax and deal structure are questions for the people you pay to answer them.