As a business owner considering the sale of your business, maintaining the status quo of retaining your business may seem like an attractive alternative. The “Just Milk It Strategy” might seem appealing at first glance, especially when faced with underwhelming acquisition offers. However, it’s essential to consider the potential downsides and risks associated with this approach.
- Retaining All the Risk:
By holding onto your business instead of selling it, you continue to shoulder all the risks associated with ownership. Economic cycles can be unpredictable, and the next few years may bring challenges that impact your business’s profitability and stability. Selling a portion or entirety of your equity can greatly increase the predictability of what your financial future holds. - Mental Load:
Owning a business requires constant attention and mental energy. Even if you’re not actively involved in day-to-day operations, your business will likely occupy a significant portion of your thoughts and mental bandwidth. This can detract from your ability to fully enjoy leisure activities and personal time. - Capital Intensity:
Depending on your industry, your business may require significant capital investments to sustain operations and growth. This means that even if your business generates healthy profits (measured by EBITDA), a substantial portion of that cash flow may need to be reinvested back into the business to fund capital expenditures, inventory, or customer financing. - Tax Considerations:
The tax treatment of selling your business versus extracting profits through dividends can vary significantly depending on your jurisdiction. In some cases, the proceeds from selling your business may be more tax-efficient than ongoing dividend payments, potentially resulting in a higher net return. Additionally, every Canadian is entitled to a cumulative lifetime capital gains exemption (LCGE) on the net gains realized on the disposition of property, which often applies to the sale of equity in a private business. This can help significantly reduce the tax burden associated with the sale of your business. - Maximizing Value:
While the initial acquisition offers you’ve received may be lower than expected, there may be opportunities to increase the value of your business over time. By focusing on improving key value drivers, such as profitability, growth potential, and operational efficiency, you may be able to attract higher offers from potential acquirers in the future.
Ultimately, the decision to sell or hold onto your business should consider not only immediate financial considerations but also long-term goals, risk tolerance, and personal preferences. It may be beneficial to consult with financial advisors, business valuation experts, and other professionals to assess the best course of action for your specific circumstances.
Reach out to us here for a consultation on if ‘just milking it’ is your best course of action.