MJ, why did you sell your business?
If your business profited $80K-$200K/month why sell it?
I’ve been asked these types of questions a lot. And why not? They are good questions. Instead of answering for the umpteenth time, here’s an article explaining why I sold a business that was nothing but a cash-cow.
6 reasons why I sold a cash-cow.
Reason #1
I knew my number – selling would get me there quicker.
In my book, I discuss a number. Your number is an amount of money that could sustain you for the rest of your life without never having to work another day.
Have you figured out your number? In my book The Millionaire Fastlane, I outline a calculation for determining your number. Your number is based upon creating a passive income stream from a 5% simple interest return on a lump sum investment. A 5% return on $10 million dollars is approximately $42,000 a month in passive income — and I mean 99% passive. Can you live on $40K/mo?? On $1 million, the passive income is $4,100 per month. As you can see, the size of your number is the amount of money you need to live exactly how you want to live.
Here are two of the investment funds I use for passive income
FAX – The Aberdeen Asia Pacific Income Fund (Asian Government Securities – Current Yield 5.7%)
AWP – Alpine Global Premiere Property (Current Yield: 7.9%)
Of course, your number is dependent on a lot of things; if you want to own a private jet, a stable full of exotic cars, and a huge estate on the coast of the Pacific, you’ll need a large number. $10 million won’t cut it. Conversely, if your goal is more about freedom in time, and less about “stuff”, your number can be a lot less.
Reason #2
Better tax structure
The sale of my business was taxed at the long-term capital gains rates of 15%. Conversely, holding on to the business and enjoying the cash flow would have been taxed north of 40%. Getting to my number would have taken a few more years. Selling got me there immediately.
Reason #3
I predicted that my revenue model would be unsustainable.
Due to technological advancement, I didn’t think lead-generation in my particular space was sustainable longer than a few more years. This meant, in order for my business to grow, I would have had to switch revenue models to a reservation based service. If you’re not familiar with the limousine business, a reservation-based service is both labor and technology intensive. My objective was to sell a majority interest (I still own a tiny % of Limos.com) to a capable investor group who shared this same vision of a reservation-based model and sit back and watch them do it. This is exactly what happened — the new management is slowly phasing out the lead-gen model. With this transition and based on the latest funding round, the company is probably now worth 5X the valuation at which I sold it. My effort in this growth has been nothing.
Reason #4
Passive income = Passive decline.
While my business was a great deal passive, it did require a periodic return to long hours and long days (Chuma mode) every year or so for a redevelopment. This was needed to stay atop of the competitive heap and stay adherent to customer demands. While I never ignored the business system, it did need a yearly tune-up and that tune-up was very expensive in terms of time. Had I ignored the redevelopment, the business would have experienced a slow and steady decline. A recent article by Michael Ellsberg is great example of the passive income mirage (The Top 4 Reasons Why Passive Income is Dangerous). Had I redeveloped, the threat of an unsustainable revenue model still loomed.
Reason #5
The Honeymoon Is Over
While in the last 4 years of ownership I didn’t work a lot, when I did work — it felt like a job. That was when I truly knew it was time to get off the horse, and learn to ride a new one. When I started the business, it never felt like a job. I was challenged. Growth was fun. After the business reached a position of dominance in the industry, the pressure to retain that position mounted. When you are on top, there are only two directions — down or sideways. Additionally, everyone guns for you. After 6 cycles of month long “Chuma modes” I wasn’t excited about doing it again.
Reason #6
The Millionaire Fastlane – and the Seven Year Itch
The idea of starting an entrepreneurial project is exciting. Running a company for decades isn’t. I always wanted to write a book on finance and entrepreneurship. However, I didn’t want to write anything on the subject unless I could claim “been there, done that” status. Once I started to realize success, my back-burning dream of wanting to author a book started to heat up. Since I have a one-track mind when it comes to focus, I knew it would be impossible for me to succeed in a book-writing project while simultaneously trying to run a company. I’m not built as a serial entrepreneur (hats-off to you guys who are!) and can only focus on 1 gig at a time. The average self-published book sells 300 copies and I knew that to do better than the average, I’d have to give it a serious focus.
Conclusion
Obviously, selling a company for any business owner is a very personal decision and a life-altering choice. These are the reasons why I chose to sell. Incidentally, at the point at which I made the decision to sell and at the point it actually sold, took more than 2 years. During that 2 years, the valuation declined by 40% due to reasons #3, #4, and #5, and of course, a recessionary economy. This decline solidified that I made the right decision.
To arrive at this decision, I used a concept I describe in my book called WADM decision matrix – it is decision tool which helps you make big decisions. I’m happy to tell you that you can use that same decision making tool online versus that pencil and paper that I had to use.
You can find the tool here: http://www.helpMYdecision.com
As I like to say, your choices do double-duty: They open roads of opportunity as well as close them.
Choose wisely my friend.
Cheers,
MJ
And Stop The Prostitution of Monday Through Friday!
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