Author Topic: Sell business to take new direction in life?  (Read 3676 times)

Archipelago

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Sell business to take new direction in life?
« on: August 13, 2024, 10:23:52 AM »
Hello all,

Long-time MMM reader and forum goer. In 2018 I started an e-commerce side hustle while working a corporate W2 job. In 2021 the business had grown to the point where I was making substantially more than my W2 job, so I cut loose and got out of the rat race. Fast forward 3 years, I'm now 30 years old, unfulfilled & unchallenged from the business, and looking to take another direction in life, primarily by starting a family.

Part of the reason I charted and stuck to this path was because my wife was a grad student for 7 years and had little to no income. She recently graduated and is heading into a significantly higher paying job with benefits, and also a highly personally rewarding career. This is not a source of animosity or tension in our relationship, if anything it's unearthed my desire to pursue a more meaningful and rewarding career. My wife is also 30. It's not too late to have kids, but we aren't in our 20s anymore and naturally, there's a biological clock. We've both always wanted to have kids.

The business itself is an Amazon FBA wholesale / resale business. I work 15-20 hours/week on the business and am the sole employee. The business is simple to operate and has plenty of room for growth. The business files taxes as an S-Corp which provides the owner with half of earnings in the form of W2 wages, and the other half as distributions. The numbers:

2022: $365k revenue, $103k earnings (SDE)
2023: $420k revenue, $102k earnings (SDE)
2024: $362k revenue, $70k earnings (projected)

The business has declined in profitability due to shifting main operational responsibilities to a warehouse (higher costs in exchange for my time & involvement), spending time strictly on operations while working on another real estate business, and very little (if any) time allocated to actually growing the business.

I'm considering selling the business to buy & work on a home, start a family, do something else entirely with my working hours i.e. go back to school, start or buy another business, become fully SAHD, homeschool, etc. I used to be energized by the business and take its challenges in stride. Now any challenges that come along are draining, stressful, and mounting headaches. I have no complaints...I understand that I'm in an extremely privileged and fortuitous position. But I'm only getting progressively more visceral desire to take a new direction in life. It's hard to explain.

I've spoken with a few business brokers who specialize in online business dealings. The brokers I've spoken with seem to think the business has value which could be purchased and grown by a buyer. I'm told similar businesses transact at a 2x multiple of earnings + the landed cost of inventory. This would put us at around $200k + inventory, totaling around $260k. Business brokers generally have a minimum 10% or $35k fee. Conservatively assuming we got $140k for the business + $60k in inventory, that would leave me with $105k after broker fees. Minus 30% in taxes, so figure $75k plus $60k in inventory.

We rent a 1-bedroom apartment. For us to have a newborn in our current place, we'd have to convert our living room to a pseudo nursery (adjoined with a home office). It could be done, but obviously isn't ideal. I would much prefer to buy a modest house that needs work, do the improvements ourselves and make it our own (including a nursery). Also important is that my wife has to wait 1 full year before getting paid maternity leave. What I'm envisioning is using proceeds from the sale of the business as a downpayment on a house. I could use proceeds to start a grad school program, start or buy another business.

Does this sound like a solid plan to move forward and get the ball rolling? When I write it out and read it, it seems like the right path.

I suppose this is more of a 'life advice' topic than a money one. Maybe others a bit older and experienced can chime in. Thank you for any advice or wisdom.

Michael in ABQ

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Re: Sell business to take new direction in life?
« Reply #1 on: August 13, 2024, 10:43:25 AM »
We've talked before about how Amazon is only getting harder for resellers. I don't see multiples going up anytime soon so I would say that it makes sense to sell as soon as possible since you seem to have made the decision already.

beee

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Re: Sell business to take new direction in life?
« Reply #2 on: August 13, 2024, 10:49:24 AM »
Here's a thought experiment that might help you.

Imagine you have $135k in cash sitting in your account and no business. Would you buy your business right now for this money (you know all the ins and outs of it, all pros and cons, you know how to run it, etc)?

If yes, then keep the business, if no, then sell it.
Will your decision change if you have not $135k but $200k in cash?

SeattleCPA

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Re: Sell business to take new direction in life?
« Reply #3 on: August 14, 2024, 07:31:10 AM »
I think it's pretty tough to sell a business that generates the owner $70K in income. Say it's not really part-time or won't be part-time for a new stressed-out owner.

The comparison the buyer should make is, okay, $70K in income... that needs to pay me a reasonable wage for my efforts... a return on the capital I've got invested in the business... and then, gosh, I need to have some cushion.

E.g., say person can get a local, basically riskless job at USPS making say $50K... with $200K invested in the business, they want, way, a $25K return on their investment? Plus given the risk, person wants a bit of cushion... say that's another $10K? $20k? The buyer should require like $85K to $95K in profits just to consider this.

It might be that the best option for you is to figure out what you want to do next... pivot to that venture... then see if you can (given your experience) milk the cow for a year or two.

Archipelago

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Re: Sell business to take new direction in life?
« Reply #4 on: August 14, 2024, 12:19:18 PM »
We've talked before about how Amazon is only getting harder for resellers. I don't see multiples going up anytime soon so I would say that it makes sense to sell as soon as possible since you seem to have made the decision already.

Yup. It does seem like I made the decision already but writing it out does seem to help for posterity's sake. Hey let's catch up sometime, I'd like to hear about how the acquisition is going if you're still working on that.

Here's a thought experiment that might help you.

Imagine you have $135k in cash sitting in your account and no business. Would you buy your business right now for this money (you know all the ins and outs of it, all pros and cons, you know how to run it, etc)?

If yes, then keep the business, if no, then sell it.
Will your decision change if you have not $135k but $200k in cash?

If I had $135k or even $200k cash sitting in my account, I would not exchange it for the business. It's clear I just don't want to operate the particular business anymore and want to move on to something else.

I think it's pretty tough to sell a business that generates the owner $70K in income. Say it's not really part-time or won't be part-time for a new stressed-out owner.

The comparison the buyer should make is, okay, $70K in income... that needs to pay me a reasonable wage for my efforts... a return on the capital I've got invested in the business... and then, gosh, I need to have some cushion.

E.g., say person can get a local, basically riskless job at USPS making say $50K... with $200K invested in the business, they want, way, a $25K return on their investment? Plus given the risk, person wants a bit of cushion... say that's another $10K? $20k? The buyer should require like $85K to $95K in profits just to consider this.

It might be that the best option for you is to figure out what you want to do next... pivot to that venture... then see if you can (given your experience) milk the cow for a year or two.
While it's true I could keep milking it and earn roughly the same as a business sale proceeds / buyout after 2 years, what I'd like to do as the next venture is buy a house. But I don't have much cash on hand to do that. Nor do I have the cash on hand to go back to school. It's definitely a tougher pivot without the cash. It may not be black & white one thing or the other, but it would simplify life if I could sell the business and then make a clean pivot to the next venture.

Yes, I'm going into this with the notion that there may not be a buyer at all. And that's OK. The business will still cashflow with pretty minimal effort on my part, I have no debt on it, have not lost any money since day 1, and have had a good run with it even if I liquidated everything and closed doors tomorrow. I have lots of flexibility with my time and no reason to complain. I built the business with a 'lifestyle business' in mind. Whether this is appealing enough to prospective buyers to prompt a sale? I have no idea.

There could also be a buyer that wants to take it on as a side project or roll it into an existing business, comes in with fresh ideas and doubles the business. I have a list of ideas to grow the business. I have no idea what the market or pool of buyers is like. I think it's still worth a try even if it doesn't yield a buyer.
« Last Edit: August 14, 2024, 12:24:58 PM by Archipelago »

Smokystache

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Re: Sell business to take new direction in life?
« Reply #5 on: August 14, 2024, 12:48:10 PM »
...  I work 15-20 hours/week on the business and am the sole employee. The business is simple to operate and has plenty of room for growth. The business files taxes as an S-Corp which provides the owner with half of earnings in the form of W2 wages, and the other half as distributions. The numbers:

2022: $365k revenue, $103k earnings (SDE)
2023: $420k revenue, $102k earnings (SDE)
2024: $362k revenue, $70k earnings (projected)

The business has declined in profitability due to shifting main operational responsibilities to a warehouse (higher costs in exchange for my time & involvement), spending time strictly on operations while working on another real estate business, and very little (if any) time allocated to actually growing the business.

I hesitate to offer this thought because I can hear all the arguments against in my head, but have you thought about taking on an employee? You offer someone (stay-at-home parent who needs a PT job, someone looking to semi-retire but wants to stay busy and make some extra money, etc.) about $20/hour to work 15 hours a week to do the easily trainable stuff. You continue to put 5-10 hours/week into the business, but focus entirely on growing and/or making it more efficient. You keep around $40-50k/year as the owner and the benefits the S-corp provides in terms of distributions and retirement options.

Now, you'll have to find a very reliable employee and pay them on a w-2, etc. etc. This would actually be a situation where I would go against conventional wisdom and hire someone I knew really well (maybe even a relative). Have them shadow you for a week or more so they know exactly what they're getting into and then come up with a written agreement and a very clear conversation about expectations, opportunities for raises, etc. If they quit or things don't look great, you could jump back into a worker role, get the numbers looking as good as possible and still sell it.

I can see someone seeing my plan and say, "That sounds complicated and I am trying to make my life less complicated" and I would agree with you 100%. But it also seems like it may be possible to earn $40k+ per year for 5-10 hours/week. You've done the hard work of buying, feeding, and raising the cow ... just seems like a good idea to milk it for a while.

Freedomin5

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Re: Sell business to take new direction in life?
« Reply #6 on: August 14, 2024, 01:47:01 PM »
It’s simpler and cleaner to sell, but if you’re only getting 135k after all’s said and done, it may be financially more prudent to milk it for as long as possible while finding ways to become has hands off as possible. Finding an employee is a good idea. You don’t need to spend time growing the business if you don’t want to. You could let it die a natural death. Minimize the time you spend on the business. Use your time to explore your interests instead. Since your wife will be working, save the higher income and live off the lower income. In a year or so, you will have enough for a downpayment on a house, just in time for a baby. Plus, you’ll still own a business generating a non-inconsequential income while working as little as possible.

Archipelago

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Re: Sell business to take new direction in life?
« Reply #7 on: August 14, 2024, 02:33:01 PM »
...  I work 15-20 hours/week on the business and am the sole employee. The business is simple to operate and has plenty of room for growth. The business files taxes as an S-Corp which provides the owner with half of earnings in the form of W2 wages, and the other half as distributions. The numbers:

2022: $365k revenue, $103k earnings (SDE)
2023: $420k revenue, $102k earnings (SDE)
2024: $362k revenue, $70k earnings (projected)

The business has declined in profitability due to shifting main operational responsibilities to a warehouse (higher costs in exchange for my time & involvement), spending time strictly on operations while working on another real estate business, and very little (if any) time allocated to actually growing the business.

I hesitate to offer this thought because I can hear all the arguments against in my head, but have you thought about taking on an employee? You offer someone (stay-at-home parent who needs a PT job, someone looking to semi-retire but wants to stay busy and make some extra money, etc.) about $20/hour to work 15 hours a week to do the easily trainable stuff. You continue to put 5-10 hours/week into the business, but focus entirely on growing and/or making it more efficient. You keep around $40-50k/year as the owner and the benefits the S-corp provides in terms of distributions and retirement options.

Now, you'll have to find a very reliable employee and pay them on a w-2, etc. etc. This would actually be a situation where I would go against conventional wisdom and hire someone I knew really well (maybe even a relative). Have them shadow you for a week or more so they know exactly what they're getting into and then come up with a written agreement and a very clear conversation about expectations, opportunities for raises, etc. If they quit or things don't look great, you could jump back into a worker role, get the numbers looking as good as possible and still sell it.

I can see someone seeing my plan and say, "That sounds complicated and I am trying to make my life less complicated" and I would agree with you 100%. But it also seems like it may be possible to earn $40k+ per year for 5-10 hours/week. You've done the hard work of buying, feeding, and raising the cow ... just seems like a good idea to milk it for a while.

It’s simpler and cleaner to sell, but if you’re only getting 135k after all’s said and done, it may be financially more prudent to milk it for as long as possible while finding ways to become has hands off as possible. Finding an employee is a good idea. You don’t need to spend time growing the business if you don’t want to. You could let it die a natural death. Minimize the time you spend on the business. Use your time to explore your interests instead. Since your wife will be working, save the higher income and live off the lower income. In a year or so, you will have enough for a downpayment on a house, just in time for a baby. Plus, you’ll still own a business generating a non-inconsequential income while working as little as possible.

Thanks for your thoughts. I have considered your exact idea. Realistically, what you say is already possible without hiring an employee. The only operational responsibilities I have are to prep some of the inventory at home and maintain a 5x10' footprint of inventory in a local storage unit. This can all be transferred to a partner warehouse we've been working with over the past few years, and gradually been allocating more operational tasks. This is around 10 hours/week. Outside of that, my only time is about 5-6 hrs/week on the computer managing inventory levels, checking emails, placing orders, etc. If I transferred over these tasks to the warehouse, I'd be left time mostly to work on growing the business (or hiring an employee who can). That said, I'm not too interested in managing employees at this stage for complexity's sake as you said, but it doesn't hurt to consider it.

Re: milking the cow. I've been fortunate enough to milk it for several years now. I think the thought of moving onto something else is more existential in nature. The milking could definitely be optimized. But I'm looking to do something where I can create and exert deep personal satisfaction. Selling the business is not a question of time. I don't mind the time spent on it. It's that I don't find it rewarding or challenging anymore. It's purely transactional and provides $. By challenging, I mean challenging to the fibers of my being. I don't mean to make this sound wooo-wooo. It's a tough feeling to pin down and describe in words. Ehh, I'm at a bit of a loss for words. Hopefully this reply is coherent for the most part.

Freedomin, that plan would work. It's plausible for sure.

Thanks to all who have taken the time to reply with comments, hypotheticals and ideas. It does help.

Freedomin5

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Re: Sell business to take new direction in life?
« Reply #8 on: August 14, 2024, 04:22:34 PM »
You don’t even need to spend any time growing the business. Keep it as long as it’s making money. Close it down when it stops making money.

Spend your time doing something where you can create and exert deep personal satisfaction.

FWIW, that’s what we are doing with our family business. My dad started it and grew it into a multi-million dollar business. He passed away and my mom took it over because she didn’t want to leave his clients hanging. Now she wants to do other stuff that’s more fulfilling but she still feels responsible for the clients, so I’ll be helping with the maintenance tasks (about 1-2 hours a week) while letting the business slowly atrophy. I call it “providing palliative care” for the business. 😂 In the meantime, we will still be collecting a decent six-figure income…until the business shrinks enough that it no longer sustains itself.
« Last Edit: August 14, 2024, 10:50:38 PM by Freedomin5 »

Smokystache

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Re: Sell business to take new direction in life?
« Reply #9 on: August 15, 2024, 07:44:45 AM »
First-hand, I can understand the idea of "this makes money but brings me zero joy". Many people dream they could create something like this and be self-employed, but in reality, it can get old.

As a thought experiment, would it be possible to 80-20 this even more. Look at your list of customers and really hone in on the best ones and lose a few that are less profitable. For example, is it a product where you could say, "Hey, you've been a great customer for X years. I'd like to offer you my new 'simple subscription' plan that will auto deliver my product every X months and I'll give you a 15% discount to be set up on auto-pay." Or could you create discounts for customers to order in bulk or other ways to further reduce your time-investment in the business? Perhaps you could cut your hours in half, but only lose 20% of your take-home? Perhaps you product doesn't lend itself to this.

It just sounds like such a lovely golden goose that I'd be hard-pressed to get rid of it at this point in your journey. You could always write down a goal like:"if my new venture does X,Y,Z, I can stop/sell the service business" to give yourself a sense that this won't have to last forever.

Archipelago

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Re: Sell business to take new direction in life?
« Reply #10 on: January 22, 2025, 03:34:04 PM »
As an update, I've decided to wind down, minimally continue high profitable inventory purchasing, sell through any profitable inventory reserves, liquidate any remaining unsellable/unprofitable inventory, operate the business with bare bones expenses, then close the business. This will all happen over the next 6 months.

We had a great run with the business and I'm ready to move on to other things in life. The business has declined enough at this point that there isn't anything of substantial value to sell. I have no regrets about not selling it sooner.

I'm moving on to other things in life and consider closing the business to be addition by subtraction.

Many thanks to all who contributed to the topic!

MrsV

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Re: Sell business to take new direction in life?
« Reply #11 on: January 26, 2025, 06:09:16 PM »
Congratulations on the decision - it isn’t easy to get to these places.  I sold an e-commerce business six months ago, one I built from passion and love and which I never imagined selling. But then the passion for the products went and everything became transactional. On paper, it would have been smarter I keep it, but I knew once that drive went it would be even more difficult in the current economy. No regrets - the lessons learned around digital marketing and e-commerce, and launching and growing a business were invaluable. It’s lovely having weekends back and clarity again - wishing the same for you! One door closes and all …

Smokystache

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Re: Sell business to take new direction in life?
« Reply #12 on: January 28, 2025, 07:38:46 AM »
Congrats and just wanted to explicitly point out that this is one of the benefits of being self-employed. The reason "I just don't wanna anymore" is all you need to make a change. I've mentioned it before, I'm a big fan of the book "Quit" (Annie Duke) especially as a balance to the "grit" concept of never stop (especially if you're making money). Congrats on being able to follow your own priorities and values.