Platano Advisors — Confidential Analysis

Sell now, or sell in 8 years?

Three versions of the years ahead: sell now and let the cash sit, sell now and put the money to work, or keep the income, sell later, and finish with a transition period. Same practice. Very different endings.

Sell now, cash idle Sell now, proceeds invested Hold, sell in year 8

Sell now, cash idle

—

Net sale proceeds plus years of after-tax compensation, earning nothing. The cost of parking the money.

Sell now, invested

—

Net proceeds compound from day one. Compensation surplus invested every year. Liquid the entire time.

Hold, sell in year 8

—

Owner income invested yearly, a sale in year 8, then a paid transition. Illiquid until the sale, and only if that sale happens.

The fence has a price. Here it is.

One more asymmetry: the sale is taxed once, at capital gains rates. The paycheck is taxed every single year at ordinary income rates. Years of ordinary income is the most expensive way to receive the value of a practice.

For holding to win, every one of these must be true

You accept being illiquid: the practice value stays locked in the business until the day it sells.

What the chart cannot show

Run the numbers

Years until the later sale:

315

Transition years after that sale:

Current EBITDA:

$250K$3M

Owner take-home (pre-tax):

$250K$3M

Post-sale compensation:

$0$1M

Multiple today:

3x8x

Multiple at the later sale:

2x8x

Investment return:

4%14%

EBITDA trend if you hold:

-10%/yr+10%/yr