Why I REFUSE to Sell My Business for $20M

I want to talk about why I don't plan on selling my businesses and why I think that most entrepreneurs should actually focus on building their business for the long term. And I think if they started to think that way and ask themselves what the decision they're making today in their business, how it would impact the company as if they were to build the business for a hundred years. If you were to take every single decision you make in your business and ask yourself, I am building my business as if I'm going to have it for the next hundred years. I really believe it changed a lot of people's decision making processes in terms of who they hire, in terms of what they invest in and in terms of what decision making process they're having in the business. And the reason I'm talking about this is because a lot of people have really glamorized the idea of selling their company because we see it in Entrepreneur magazine, Fast Company, just the name of that. I hate by the way, and all these other publications like TechCrunch, et cetera, that somehow selling your business is the pinnacle of entrepreneurial journeys that we should be attaining for. And honestly, I don't think that's the right move. If you look at great investors, wealthy investors, the likes of Warren Buffett, they actually rarely sell their businesses. I'm going to explain today why I don't plan on selling my businesses. And I never start a business with the intention of selling it. And, and not because I'm altruistic or because I have some greater good for the world necessarily as much as one, losing purpose. And two, the fact that after taxes is actually very difficult to beat the returns of a, well, cash flowing business. Let me explain. Let's say for example, I wanted to sell all my business that I currently have, let's just call it for $20 million. If I sold it today for $20 million, by the time I would have all my taxes paid at a very high tax rate, by the way. Because if you just make $20 million in straight profit on your tax return, you're going to have quite the tax bill and so maybe about half of that. So about 10 million of the dollars that's just for round numbers sake is flushed down the toilet going to Uncle Sam. Now you got to find out a way and deploy that capital in a manner that's going to return money. Because like you just having cash sitting there is not a good idea. So you're going to have $10 million now out of the 20 million that you sold the business for. But you're not just gonna let that cash just sit there. It's gonna decay away to inflation and it's a non productive asset now just in the form of cash. And so you're gonna go deploy that and let's just say you go get a bunch of stocks that have dividends. I'm gonna talk about dividends in just a second here and why it's a bit of a trap sometimes when it comes to investing and why most companies actually avoid dividends and they rather invest in growth. But when it comes to taking that $10 million, I'm going to invest that in the stock market in dividend paying stocks. Let's just call it 4%. Well, that would mean that I make $400,000 passively from, in terms of dividends from those stocks. Now on that $400,000 again, I would be paying a very high tax bracket. About half of that would be going out the door to taxes on those dividends. That would be money that I'd be taxed on just taxable income, it's dividends. So I would actually end up making around $200,000 in actual after tax income on that $10 million that I got from selling my business. And so the question is, well, why would I not just keep my $20 million business, build it in a way that is much better cash flowing, super profitable, optimize it for profitability and just keep it for the long term. And I think most business owners should.

Vast majority of business owners are building their business as if they're going to sell it, when in reality, the vast majority of small business owners never will sell their business. And it is a lifestyle business. And I know it's always a good thing to build your business in a way as if you're going to sell it, because you typically have to depend on systems, delegation and those are all healthy things in a business. Don't get me wrong. And I know there's like the book Built to Sell and those are all. I agree with those. However, the statistics don't lie. That is the vast majority of small business owners will not sell their business. And so people are chasing these metrics as if they're going to sell, when in reality they're never going to. And they need to optimize for profitability. And they shouldn't be thinking about selling either. Because if they would actually go to sell, pay taxes and then invest, you got to go find a way to deploy that capital. And it's a very good chance that whatever business or industry you're in is where your expertise is at. So now you're going to go into an industry that you actually aren't not as good at and try to figure out, like real estate or investing in stocks. And people call it passive. And honestly, it's just a matter of you're now competing in a marketplace, you actually don't have much skill. And the fact that you built a business in another industry and it was a sellable asset probably means that's the industry that you should be in and you have a unique marketable advantage in. And so now the question is, okay, well, why is it that in the past 10, 15, 20 years in our economy, especially in the stock market, has have companies really gone after growth at all costs instead of paying dividends? And this is a really important topic, I think, because people will look at companies like Facebook or Netflix or Salesforce, et cetera, and although they're making a lot of cash, they would actually prefer to not have a whole bunch of net profit and they'd rather go chase growth. And that's why when companies stop growing, a lot of times in the stock market, their stock will plummet. It is because their fundamentals are built on growing and growing and growing and not on profitability. The question is, why is that? It potentially could be this. If you have profits in the business, you either have to invest into the business and grow, or you're going to have to use dividends to give that money back to shareholders. And that's typically how a stock is actually valued, is what is the expected cash flow in the form of dividends returned back to the shareholders. And so you have dividend stocks, you know, Exxon Mobil, you have all these different types of stocks that will return 2, 3, 4% dividends. Whereas a lot of these tech stocks that have been growing for so many years, they don't have dividends. They don't actually return cash, return dividends back to the shareholder. But the question is why? And potentially it is this. And this is something to think about when you're starting to take profits from your business and whether or not you should be investing in growth versus profitability. And the bottom line is this appreciation of an asset does not get taxed. What that means is if I have a share of Google and it's worth $100 and it goes up to $200, my net worth is doubled. However, unless I sell that asset, that share in Google, I don't ever have a taxable event where my net worth is still up. Now get this. If I Was instead to have that hundred dollar stock and it paid me $50 in distributions in the form of dividends. Guess what? I'm gonna pay 25 of that 50 back to the government in the form of taxes. Now this is the crazy thing. When you look at, when you look at corporate taxes, it's actually double taxation for a lot of these companies that are C Corps, because they're going to pay a corporate tax rate, let's call it 15, 20, 25%, depending on which administration is currently in order, they're going to pay taxes on that, that's the corporate tax. And then it's going to go to the investors and they're going to pay 30, 40, 50% taxes. And if they're in a higher tax bracket, close that 50%. Now all of a sudden, literally 60, 70% of what otherwise were profits has now been ate away at. And so the question is, well, why would you want profits in the business and then distributing it via dividends seems very inefficient due to the fact that 60, 70% of that profit gets eaten up by taxes before it actually hits the pockets of the investors. So for the past 10, 15, 20 years, especially when inflation has been so low historically over the past 20 years, it's like, why in the world, especially when interest rates are low, it's like why in the world would I want to have dividends that I get taxed on to that extent? Especially with C corporations where it's double tax, why would I not, why would I do that when I can just invest that into growth and expansion and more offices and different lines of business? And this is why you've seen with Google and Facebook, they have these crazy moonshot ideas like bringing Internet via drones or balloons to Africa. And like these crazy ideas that they came up for so many years and they spent hundreds of billions of dollars on things like driverless car technology. And all these what we call insane and profitless ideas from the beginning were never really intended to honestly be profitable. It's almost, it's unfathomable they ever be profitable. But they didn't care because their only ambition was growth. And the reason for that potentially is the fact of double taxation. And now if you're a small business owner, you're not gonna have double taxation. If you're not a C corp, you're gonna be an S corporation. But still 30, 40% of any of that money you actually take out of the business in the form of distributions is gone. And so the question is, well, do you continually just keep growing and growing and then allow the net, your net worth to be increased by the asset of your business constantly just growing and expanding and becoming more profitable and more efficient. Yes, but then taking those profits and redistributing them and reinvesting them into the business instead of taking them in the form of profits and taking the. Taking the money out as distributions from the owner's perspective. And then people ask, well, how am I going to make my living expenses? And honestly, this is what the wealthy do. And that is they build their asset in form of stock in their businesses and they put all the money back in the company so they never paid taxes. And then once you now have a business that is so big and large that a bank comes along and says, hey, we'll give you a loan against your equity, and now you take that loan out and again alone, you don't have to pay taxes on the principle of a loan. And in fact, the interest that you pay on that loan is actually tax deductible. That's the cheat code that the real wealthy people use. It's not buying and flipping and getting the next business and going from this thing to this thing. And that's not how billionaires make their wealth. And something to think about.