Business owners are exceptionally good at being optimistic about the future. In reality, we have to be. Growing a company is a long grind, and if you are not an optimist; I do not know how you get through the dark stretches, the ones where the walls feel as though they are closing in from every side and there may not be a way through. Optimism is therefore the path forward. It is what lets you sign the lease, make the hire, and take the risk when the spreadsheet says you probably should not, or when you do not know exactly how you are going to make payroll in a month's time but you keep going anyway. There have been times where blind optimism is what got me through the darkest stretches of growing RWT. I hired team members because I knew I needed them to grow, albeit I was not entirely sure how I was going to make it work. Optimism got me through those times.

Yet this optimism can also be what blinds you.

Nowhere does it show up more clearly than in the decision to sell. A business owner will tell me they want to give it two more years, maybe three, and build something bigger before they go to market. At face value it sounds prudent... It sounds like patience and discipline and playing the long game. Often it is none of those things, because it quietly ignores a simple truth...

The longer you wait to convert the business into money, the less life you have left in which to spend the money you have earned and enjoy the fruits of the many years of labour you put into building the business itself. It is the definition of a diminishing return.

That is the paradox. Selling your business is a deeply emotional process, for many of the reasons I set out elsewhere in this book, and that is precisely why it cannot be resolved emotionally. It is not resolved by ambition, or effort, or a better sales quarter. It is resolved by arithmetic.

Four variables sit at the centre of this paradox, and after advising hundreds of business owners on their M&A ambitions, I have almost never seen an owner put all four of them on the same page at the same time. Individually each one seems manageable. Together they change the answer.

Time

I grew up watching cowboy movies, many of them black and white, and many of them featuring the notorious John Wayne. You would likely be surprised to know that I have probably watched more John Wayne movies than most women my age. I generally did not understand the story lines and I am not advocating for the man himself, but as a kid I loved those films. Years later, in one of his colour pictures, I came across a line that has stayed with me ever since... "we're burning daylight” as he had a group of cowboy’s go wrangle up some cows.

Even as a child that sat with me. Daylight is a fleeting thing. To a far more significant degree, so too are our lives. Oliver Burkeman frames it well in Four Thousand Weeks: that is roughly all any of us get. If you are reading this and you are middle aged, you have two thousand left. Time is fleeting and we can never get it back. It is the one thing that, no matter how much money you sell your business for or how much you can grow it, presents a hard trade off that every business owner must face. And time, unlike money, is priceless.

We were once asked to provide a proposal to sell a machining company owned by an 85 year old man who had run the business for more than forty years. The company was worth somewhere in the range of ten million dollars, and I thought this would be an easy client to sign on with us... after all, he was 85. We met, we talked through the process, and a few days later he came back to us and said it was not the right time. He was going to keep operating the business for a few more years.

A few more years. At 85.

That is an extreme example, but the instinct behind it is not extreme at all. Owners in their fifties and sixties routinely assume they will work until seventy, sell the company at the top, and then have a grand and vigorous retirement waiting on the other side. Sometimes that happens. Frequently it does not, and the reason has nothing to do with the business.

There is a difference between your lifespan and your health span. Lifespan is how long you live. Modern medicine is an amazing thing and its prolonged our lives dramatically. What matters more however is how long you are healthy. Health span is how long you live well, with the energy and mobility and clarity to actually do the things you spent four decades telling yourself you were working towards. It is about having the vitality to live intentionally. For most people the gap between the two is a decade or more, and that decade is not spent climbing in Patagonia, travelling the world or sailing the west coast. It is spent managing decline.

There is a passage I have always liked, attributed to the Dalai Lama although its actual origins are murky, about the strange rituals human beings inhabit. The idea is that we sacrifice our health in order to make money, then spend the money trying to recover our health, and are so anxious about the future that we never inhabit the present... and so we end up, in the phrase that closes it, having "never really lived." Whoever first said it, the observation is sadly true for a great many business owners, and it is worth taking note of.

So when an owner tells me he wants three more years, what I hear is that he is spending three years of his health span to buy something. The only honest question is whether the thing he is buying is worth what he is paying for it, and whether those three years will in fact garner a better financial outcome than he could achieve today.

Usually the answer is no, and here is why.

What Your Money Earns Once It Is Yours

Take the machining company. It is worth roughly ten million dollars. Assume it sells, and the owner puts those proceeds into a moderate risk portfolio. At a conservative six percent, that capital throws off roughly six hundred thousand dollars a year. Pre-tax, as is every other figure in this chapter, so its easy to understand. But also with no employees, no receivables, no equipment failures, no customer concentration and no phone calls at two in the morning.

It also compounds. Left alone, ten million dollars at six percent annually becomes just under eighteen million in ten years, and the owner does not have to do anything at all to make that happen. He does not have to win a single new contract. He does not have to replace a retiring foreman. He simply has to be alive.

Most owners have never framed their business as an asset competing against any other alternative. In their minds, their net worth is the business and the business is their net worth. They compare growth to standing still. The real comparison is growth versus a portfolio that grows on its own while they go and do something else with their remaining good years. This is a distinction that far too many business owners fail to acknowledge.

What Growth Actually Costs

This is the real kicker, and the part most business owners never sit down and calculate.

That same machining company does two million dollars in EBITDA and trades at five times, which is how we arrive at the ten million. Every additional one hundred thousand dollars of EBITDA is therefore worth five hundred thousand dollars of enterprise value at exit. That sounds excellent right up until you ask what it takes to produce it.

That hundred thousand almost never arrives for free. It requires people, working capital, sometimes equipment, sometimes a new location or a new line of business, and always the owner's attention. All of it generally requires capital, whether through debt or as a front loaded investment out of the business, and it takes many months to stabilize. It shows up on the income statement twelve to eighteen months after the money goes out, not the week of.

The passive portfolio produced six hundred thousand in a year and will do it again next year without being asked.

So an owner who spends three years pushing EBITDA from two million to two and a half million has created roughly two and a half million dollars of additional enterprise value. That is real money and I do not want to diminish it. But over those same three years, ten million sitting in a portfolio would have grown by about one point nine million on its own, with a fraction of the risk, none of the labour and all of the freedom. The owner traded three years of his life and his health span for a difference of six hundred thousand dollars, assuming everything went to plan.

From my experience, I have seen many business owners pause on selling with the goal of getting the company to a point where it is worth more. Nearly all of them either fail to deliver on the plan, or fail to consider what achieving it actually costs.

The Risk Nobody Prices

This is where the paradox turns from uncomfortable to genuinely dangerous, because the growth case assumes the business behaves.

Private companies are volatile in ways owners systematically underestimate, precisely because they have survived the volatility so far. A key customer leaves. A competitor with better capital shows up. A regulation changes. Trade challenges that have nothing to do with your business present themselves. Interest rates move and your buyers' financing math changes with them. None of this requires you to make a mistake as a business owner... it just requires you to be in the market.

And the leverage that works so beautifully on the way up works exactly as hard on the way down. That same five times multiple means a twenty percent decline in EBITDA erases two million dollars of your exit value. Not two million of revenue... two million of your net worth, in a year you did nothing wrong. If the multiple compresses at the same time, and multiples move with markets and sectors and buyer appetite, the damage compounds. Five times becomes four times and another two million is gone.

I watched this happen to a client whose story I return to more than once in this book. He had built a B2B services company doing nearly two million dollars in annual EBITDA. Around the age of 65 he decided it was time to sell, and he was clear with me about why. He valued time with his family and his children, one of whom was not doing well health wise, more than he valued money.

But he had anchored on a number. Twelve million was what the business was worth in his mind, and nothing was going to move him off it. When we took the company to market, performance began to decline for reasons that had far more to do with his market than with him. He turned down offers at eight million. He waited two more years. By then he was receiving offers around five million.

He gave up both. The money and the time. He lost seven million dollars of value chasing a number he had decided on in advance, and he spent two of the years he had explicitly told me were the reason he wanted to sell in the first place.

This is a real risk that few business owners acknowledge. Last year was strong, so they assume next year will be too. What I can tell you, from a career spent reviewing thousands of mid-market financial statements, is that almost none of them are perfectly linear.

An invested portfolio carries risk too, and it would be naive to pretend otherwise. But it is diversified across hundreds of companies and dozens of industries, and it does not depend on you personally showing up. Your business is a single, illiquid, undiversified, key-person-dependent position representing most of your net worth. If you were a financial advisor, you would never allow a client to hold a portfolio like that. Yet nearly every business owner does exactly that, for decades, and rarely acknowledges the risk.

Putting It Together

Hold all four of these up at once and the picture looks different than it does one at a time. Your remaining good years are finite and shorter than you think. You have built a business worth many millions of dollars, a feat that can fund a truly exceptional life of your choosing. Your capital, once liquid, earns meaningfully on its own without you. Each increment of growth costs real money, real time and real risk to produce. And the whole position can move against you for reasons entirely outside your control.

At some point those lines cross... Past that point, continuing to own the business delivers almost no additional benefit beyond your continued time, commitment and stress. You are working hard to end up in more or less the same place, while spending the one asset you cannot replenish... your time.

I want to be deliberate here, because this is not an argument that everyone should sell today. Plenty of owners are nowhere near that crossing point. Some are genuinely early in a growth curve where the value creation is real and dramatic and worth every hour. Some love the work so much that the business is not a means to retirement at all, it is the life they actually want, and there is nothing to fix in that. Those are legitimate answers.

What is not legitimate is arriving at the answer by default. By optimism. By the assumption that there is always more time, that the earnings will keep climbing, that the buyers will still be there and that your health will hold. None of these are guaranteed, and I have watched a great many business owners make the mistake of assuming they are.

The owners I have worked with who exit well are not the ones who timed the market perfectly. They are the ones who sat down at some point and honestly ran the numbers against the calendar, and were willing to accept an answer they did not particularly want to hear.

The machining company owner never ran those numbers. I do not know how it ended for him. I still think about him and what came of his business.

Reece Tomlinson is the Founder and CEO of RWT Capital Corp. and the Author of Uncommon Capital

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