The Exit Decision Most Business Owners Get Wrong

Most business owners spend years thinking about how to maximize the value of their business before they sell. Far fewer spend the same amount of time evaluating whether keeping the business is actually the better decision.

After selling two companies that I operated and helping many MSPs exit their businesses, I’ve come to believe that the biggest mistake owners make isn’t selling too early or selling too late. It’s evaluating only half of the decision.

I have had an ownership stake in several businesses during my career. In two of them, I was also the operator: my first MSP and later TruMethods. Before exiting each business, there were many factors I had to consider. Each decision was different because my age, my personal financial situation, and my emotions around the business were all different at the time.

Over the past five years, I have also been involved in acquiring more than 15 MSPs and have helped many other MSP leaders exit their businesses. That experience has given me a new perspective on what determines when (and more importantly why) you should sell a business.

Most owners I talk to focus on valuation and the exit multiple. Those things matter, but after going through the process myself and helping many others, I’ve learned they’re only part of the equation. I could probably write a book on everything I’ve learned, but today I want to share a few of the considerations I believe are often overlooked.

The first are the non-financial considerations.

Your age plays a much bigger role than most people realize. Are you ready to enjoy life more? Are you young enough to create another chapter where you define the rules instead of following them? What is important to you today, and how do you want to spend your time three to five years from now? Those questions should influence your decision just as much as valuation.

Think about your work-life balance. Have you been running hard for twenty or thirty years? Do you feel different about work today than you did ten years ago? Have you postponed travel, family time, hobbies, or other experiences because you always assumed there would be time later—and now “later” has arrived?

Then ask yourself about opportunity. Does the idea of starting with a clean sheet of paper excite you or scare you? Some entrepreneurs are energized by building something new. Others would rather mentor, invest, serve on boards, or consult in a role that is both rewarding and less demanding than running an operating company.

Finally, be honest about burnout. Can you honestly see yourself doing the same job for another five years? This question is especially relevant for MSP owners. We are entering into what may be the biggest transformation our industry has ever experienced. Are you excited about leading through that change, or are you simply tired? There isn’t a right or wrong answer, but there is a truthful one.

The financial considerations are equally important, but many owners evaluate only one question: What multiple can I get?

Valuation matters, but it is only one variable.

Is most of your net worth tied up in your business? There is a real cost to having nearly all of your wealth concentrated in one illiquid asset. Imagine if 90% of your investment portfolio was invested in a single stock that you couldn’t easily sell. Most financial advisors would tell you that is far too much risk. Yet that is exactly the position many business owners are in. As you get older, the cost of carrying that risk increases.

Think about the time value of money. Once you sell, your wealth is typically invested in a diversified, liquid portfolio with more predictable long-term appreciation. An MSP, on the other hand, can remain flat for several years. If your largest asset doesn’t increase in value for three or four years, that is an expensive outcome. Hopefully you’re receiving profits along the way, but those profits are generally taxed at the highest rates.

Your time also has value after an exit. Maybe you spend it with your family. Maybe you travel. Maybe you build another company or pursue opportunities that are more fulfilling. Whatever you choose, that time has value, and it should be part of your decision.

One of the biggest mistakes I hear is what I call the “I need more money” fallacy. Owners tell me they just need to grow the business for another year before selling. Sometimes that makes sense. Often it doesn’t.

The increase in value they are hoping for usually requires a level of growth or profitability they have never achieved before. I’ve had owners tell me they just need another six to twelve months after I’ve watched their business perform essentially the same way for the previous ten years. Nothing tells me the next six months will be any different than the last ten years. Sometimes we convince ourselves that the next year will be different simply because we want it to be. At some point, you have to accept where you are, and not where you wish you were.

There is also timing risk. What happens if your plan is to sell in three years, but the economy or the industry enters a downturn? Would you be comfortable running the business for another three, five, or even eight years? Even if you are willing to wait, what if the value of your business after the downturn is no higher than it is today? That is a very expensive delay.

The biggest risk, however, may be assuming you’ll always have the options you have today.

I’ve seen business owners become sick, pass away unexpectedly, lose the passion to lead, or simply miss the market. Your business is likely your largest asset. Make sure you’re factoring in all of the personal and economic events that could dramatically change your options.

Here is my point.

There is risk in selling your business, and there is risk in keeping it. Most owners spend all of their time thinking about the risks of selling while ignoring many of the risks of holding on.

You can’t perfectly time the market, and you’ll never have perfect information. What you can do is honestly evaluate all of the financial and non-financial factors and assign realistic value to each of them.

For some owners, keeping the business is the obvious decision. If you have substantial wealth outside the business and you still love what you do, why sell?

For others, particularly those approaching 50 or beyond, it may be worth challenging the assumption that waiting is always the better answer. While you still have options and energy, take the time to evaluate whether you’re optimizing for the next multiple, or for the next chapter of your life.

When I look back at both of my exits, I know the businesses would have been worth more if I had held onto them longer. That’s almost always true.

But I wouldn’t change either decision.

The additional value I created after each exit (personally, professionally, and financially) far exceeded the extra value I would have captured by holding on for a few more years.

Selling gave me something much more valuable than a larger check. It gave me the opportunity to grow, experience things I never would have otherwise, and start again with a clean sheet of paper.

Sometimes the best return on an exit isn’t measured by the price you receive.

It’s measured by what becomes possible after you sell.