Why I’m not selling my business

I have this dream lingering in the back of my mind about selling my business and sitting on a beach somewhere drinking endless San Miguel Lights or Tiger Bacs.  All without a care in the world and doing this while living off $20,000 USD/year afforded to me by using the 4% rule.  But after doing some calculations and re-evaluating my business I decided to keep it.  

I realized that what I actually wanted more than retiring on a beach somewhere was freedom and stability and this could be accomplished not despite my business but because of it.


The 4% Rule vs The 40% Rule

4% is the safe withdrawal rate where you can theoretically withdraw 4% of an invested sum of money a year without lowering the principal.  So if you have $500,000 invested in index funds you should be able to withdraw 4% or $20,000 a year forever.

This is basically the principle behind FIRE (Financial Independence Retire Early), which is arguably much better than the old model of Retire Old and Try Not to Die but not without it’s faults.

The 40% rule (which I first heard on the TMBA Podcast) basically says that instead of investing in traditional markets to get the 4% rule, you can invest in a website and with a little work and time you can get a 40% return.  By owning a business you are essentially using the 40% rule.


Problems with Retirement

The first problem with retirement is that it is probably pretty boring.  How many people retire only to take up a part-time job as a Wal-Mart Greeter or volunteer as a crossing guard at a local elementary school.  People need to have a purpose in their life and sitting on a beach doesn’t usually accomplish that.

The second problem is that 4% on an investment sucks.  Okay, I know that this is the “safe” withdrawal rate and the stock market has averaged 7-10% over the last hundred years so you could potentially end up with a lot more money.  But you don’t really have any control over this and you could also end up with less if the markets don’t preform the same in the 21st Century as they did in the 20th Century.


What would happen if I did sell my business?

Online businesses typically sell for a multiple of 25-35x monthly profit.

I’ve had my business for 5 years and the past 36 months it has made an average $6,000/month profit.  If I get a 30x multiple on the site then that is $6,000 x 30 = $180,000.

$180,000 USD – Website Sale for 30 x Multiple

-$21,600  – Brokerage fees –  10-15% brokerage fees, we’ll say 12.5%


-$17,854  – Taxes  – $158,400 – $39,375 (0% cap gains tax) = 119,025 x 15% (capital gains tax) = $17,854.00

$140,546 in my bank account after the sale

So if I take this $140,546 and invest it in index funds it yields me a whopping $5,622 each year using the 4% rule.  Or I could keep my business running at it’s current level of $72,000/year and this would come out to be a 51% return on a $140,000 investment!  So instead of selling my business I am treating it like it is a business that I bought as an investment.


What would I do after I sold my business?

This question is often overlooked by people wanting to sell their business and thanks to books like Before the Exit by Dan Andrews I have the luxury to contemplate it before actually selling my business.

Over the years, for better or worse, my identity, self-worth and purpose have been derived from my business.  Selling it would most likely create a void which many previous owners are faced to deal with.


Why I wanted to sell my business:

To dig further into this, I want to look at WHY I wanted to sell my business in the first place.  The main reason is that running a business is stressful.  I have an e-commerce business that deals with physical products so there are customers I need to deal with, supplier relationships needed to maintain, SEO needed to be done to drive traffic, Google Algorithm Updates to avoid so I don’t lose the traffic, etc.

But instead of throwing out the business with the bathwater, I started outsourcing the things I didn’t want to do anymore.

The first step was to get a VA which I hired off up Upwork for $6.00/hour (which I think is high but extremely low compared to what my hourly rate should be).

Now all of my email inquires go to the VA first and then (when the customer is further down in the sales cycle) to my email inbox.  This has cut my email time in half.  They also do customer check-ins, order processing and tracking and I hired freelance writers for content.  All of this has brought down my total amount of work to about 13 hours a week.


Running your own business is easier than running someone else’s.

This shouldn’t come as a shock but I know my business better than anyone in the world.  I know what works and what doesn’t, what products to add to it, how to deal with customers and after 5 years I am only getting better and more efficient.

If I sold my business I would be starting from scratch and having to learn a whole new business.


Online businesses are tax efficient.

Remember the $17,854 I had to pay in taxes, that was mostly from long term capital gains which would be about 15% (you can exclude the first $39,375 assuming you don’t already exclude that using the Foreign Earned Income Exclusion).

Foreign Earned Income Exclusion (FEIE)

The FEIE allows US citizens living abroad to be exempt from paying federal income tax on their first $105,000 of earned income as long as they pass either the physical presence or bona fide resident test.

Since I am a US citizen living in Taiwan and I’m a bona fide resident of Taiwan I can claim the FEIE and I don’t have to pay federal income tax on the $72,000 I earn annually (however this is still subject to self employment tax).

One of the biggest areas of confusion with the FEIE is the “earned” part.  When you sell an asset, that money is not earned so it doesn’t qualify for the FEIE which is why I would have to pay 15% taxes on it.  But if I “earn” the money by working in the business then it does qualify for the FEIE.

There are also many small business deductions to take all of which make running a business much more tax efficient than selling one.


Final Thoughts

Treating my business as an asset and investment has given me a lot of mental space and clarity and while it is ultimately a better decision for me to keep my business than sell it, it certainly doesn’t mean that’s the best choice for everyone.

I’m going to focus on outsourcing as much of the business as I can and keeping it as part of a portfolio of businesses.