Hello everybody, it's Sam from Financial Samurai and in this podcast I want to talk about the regrets of someone selling his online business for millions of dollars Because I really want to highlight that money really isn't the focal point for happiness and you hear it all the time money doesn't buy happiness but I seriously believe after certain amount whether it's about $75,000 if you're living in the heartland of America or $40,000 if you're living in an expensive coastal city once you have enough money to provide food shelter You know general living expenses entertainment some travel You're not gonna be that much happier if you have a lot more money.

I've been tracking my money journey since 2009 you know publicly but privately I've been writing about my money thoughts since 1999 when I first had a job and You know, I've gone from what $40,000 base salary living in New York City, which is like $24,000 a year living in Texas Dallas or Houston.

It wasn't that much money and I was working 70 80 hours a week and then I got to a point where I was making 15 times that and still working about 60 hours a week, but I wasn't much happier In fact, I was kind of miserable Which is why I left my day job in 2012 to make no money because I wanted freedom I really wanted freedom and freedom is the X factor that Will allow you to feel like the richest person in the world if you got that compared to a billionaire who has to answer to thousands of shareholders and the stocks not doing well and He or she's constantly under stress so this podcast encapsulates one person's journey and thoughts and feelings on what transpired after he sold his online business for 2.8 million dollars and What he would have done differently and why he wished he would have held on For the past six months now I've been trying to figure out what to do with financial samurai after achieving the 10-year anniversary mark It takes a lot of work recording this podcast Writing posts responding to comments and emails and so forth, but it's been part of my life right for so long And I really thought about selling the site because I just want to do some new things, you know after 10 years I kind of have this 10 year cycle in me and then maybe I have I don't know Hopefully four more 10 years and I'm dead So we all got a thing about these cycles some cycles are longer than others because some of us have different endurance qualities than others So I've been searching searching for reasons why I should sell and searching for reasons why I shouldn't sell And this is a good practice for all of you guys to do Because if you decide to do something you're gonna find reasons why it's right to do that something So you also got to find reasons and be subjective not subjective Objective and try to find the other side so you can see all sides of the equation So a friend of mine sold his website for 2.8 million in 2010 he started it for a thousand dollars back then and when I started financial salmon 2009 It was also about a thousand dollars because I had to hire someone to set it up get the design and so forth But today you can start a site for something like 50 bucks or 100 bucks and you can do it much more quickly Which is why everybody should try to start something online at least have their own website and don't let you know The Facebook's and LinkedIn's and so forth get rich off you get rich off yourself And at least give yourself a chance But anyway enough about that.

So he started the site with a thousand dollars and he sold it for 2.8 million So that's a twenty eight hundred X return which is better than practically every single angel investment ever out there better than investing in uber at the angel round or Airbnb and Definitely better than investing in like SoftBank and we work as we work goes the other way So he thought That by selling the site he would free up valuable time to take care of his young boy and it did he was 30 years old But after six months, he wasn't satisfied with only being a stay-at-home dad after working so hard on his business for so many years When his boy turned one, he decided to send him to daycare so he can go back to his old routine of building a business This is what he is passionate about building online businesses and seeing them grow and at two and a half years old He decided to send his boy to preschool and his wife worked a full-time job as well He also thought that by cashing out in 2010, he would feel a lot happier You know, there's a tremendous amount of uncertainty back in 2010 I was just about a year maybe just six months after the worst of the financial crisis had passed and I remember that time quite clearly Everybody was still losing their jobs and he thought by selling at least he could just get that win because other Businesses that he noticed went to zero Despite the nice payout.

He still wishes he would have never sold and here are the reasons why One he felt like he had lost a child Years before the birth of his son. He birthed his website Selling the site made him depressed that he no longer had a baby to nurture For almost seven years.

He looked forward to working on his website before and after work and when he got laid off in 2009 He spent 60 plus hours a week on the website Sometimes he spent way more time on his business than he did his own biological child And that's not a surprise because many working parents spend way more time at work than raising their children, too He loved his business as he would any child and when he sold he felt like the worst father ever And here's the thing selling something you love for money is a horrible horrible feeling he says You will only realize how much you love that something until it's gone We all know this from breakups from being far away from losing whatever it is We took for granted and the irony is you need to sell to realize whether you made the right choice or not If you feel nothing after you sell that is how you know, you made the right decision - he lost his sense of purpose He underestimated how important it was to look forward to having something to do every single day If you look the Maslow's hierarchy of needs on the very top is self fulfillment needs self-actualization achieving one's full potential including creative activities So three he lost that creative outlet Do you remember when we were kids we'd make paper mâchés and clay figurines and draw random things?

It was fun. We got our hands dirty. We Expanded our minds. We just thought of crazy things to create So once he sold he tried to pick up guitar, but that didn't last very long He said he should have known because he had his guitar gathering dust next to his bed for the past eight years Then he tried painting but that wasn't easy.

It was a little bit too messy He didn't have a big house where he could throw all his paper on the ground and just paint like crazy So after a couple works of art, he gave up All he wanted to do was go back to his website and create and build upon that foundation But he didn't have it and he couldn't for the first year because those non compete For this is a big one.

He left so much money on the table It turns out in retrospect selling in 2010 was not a good idea Because it was the bottom of the stock market bottom on the real estate market and bottom of the economy It was a really critical error The site he said was churning out an operating profit of about six hundred thousand dollars a year So at the time he thought selling for 2.5 million plus a three hundred thousand dollar earn out was a good price But some of the sites that were smaller than his Kept on going to the point where they started making about a million dollars in operating profit by 2019 and some as early as 2017 so not only that Valuations for websites went up to along with valuations of the SP 500 So if he had kept his operating profits flat Let's say at six hundred thousand a year if he had held on for five more years He would have made another three million dollars and then he could have sold a site for more like four point two million dollars instead Of two point five million dollars plus a maybe six hundred thousand dollar earn out due to higher valuations So all in all he thinks he left about five million at least Up to about eleven million on the table if he could have just hung on until now So this is a really critical point for entrepreneurs out there Especially with cash flow positive businesses you want to hold on for as long as possible if you can just keep profits flat Well, that's kind of like gravy every single day Valuations stay the same and you can still sell the business if you are a worker an employee You're trading your time for money.

And if you don't work, you don't get paid and There's no exit if you exit there's not a big pile of equity you can cash in on well Some of you will have that if you work at a startup You know tech company or whatever that gives you a lot of equity.

So really think about How to generate wealth it's your income Plus equity the equity component is really what makes a lot of these very wealthy people the richest it's not the income folks Five he wasted his time trying to recreate a successful business During his year-long non-compete. He tried to start three new businesses in different fields that all failed After his non-compete was over.

He tried starting a couple other websites similar to the one he had But they didn't gain any traction so all told he wasted about three years of his life trying to get back what he lost and it Infuriated him to know that all he could have done was spent that time compounding and building on top of the already successful business he already had and He could have saved time and made even more money Six his baby was finally killed Four years after his site was purchased the acquire redirected his site to land on some other business they owned Essentially they killed the site and all the time he had put into it and it felt like a knife in his heart He said he just couldn't believe that after all those years He thought it was gonna last forever But the steward decided to get rid of it and that was really a really big blow as you get older You start thinking about leaving a legacy for your children Unfortunately, you can't if your baby got killed you want to tell your children what you did to serve your country to provide for your family and one of the biggest and best ways to do that is to build a business because you can see it and you can also use That business to provide for your children and maybe get them a job in their family business, but all that went away Seven he started taking shortcuts that made him feel ashamed because he was so desperate to recreate His success and glory he started cheating He started doing a lot of scammy link building exercises to try to game the search engines like Google He started taking ideas from many other established sites and just copying their articles with their own spin I've seen that happen a lot with financial samurai this one guy He copies literally all of my successful posts and just recreates it on his own And he pretends like it's his idea.

It's pretty annoying This guy also copies the way I write my author bio with my affiliate links It's fascinating how there's so much blatant copying going on right now, and it's disappointing. But what are you gonna do? So he no longer was trying to create something original that he was proud of He just hired a bunch of freelancers to put up a bunch of crap online and that crap worked because Google can't really tell the Difference yet between crap and something really really authentic and he put a lot of advertising dollars behind the content Even though it was boring as crap because he had figured out a way to game the system eight He became irrelevant in his community This is a really important one and something that I felt when I left my day job in 2012 After I left finance, you know suddenly I didn't hang out with the clients.

I didn't hang out with my peers because I was irrelevant I wasn't providing any value and he felt the same way When he had his site everybody gave him the time of day Journalists would ask him for a quote He would be invited to come on podcasts and TV other bloggers and website owners would say nice things about him and his site and His offline friends would refer to him as a successful entrepreneur And once he sold all that went away He lost contact with all his peers who he had thought were his friends.

They were outwardly Congratulatory. Hey, good job selling. I'm so proud of you seven years. Good job. Good job But behind his back they just stopped caring he could no longer help promote their work so they stopped giving him any love and The podcast and interview request stopped as well.

So once you lose what makes you valuable You're gonna really truly recognize who your friends are. Oh And he admitted that he decided to buy himself back into the conversation by sponsoring various activities in the community Right buying access buying friends and he did get recognized as that's how it is It's all incestuous.

It's pay-to-play in many many Organizations, but deep down he felt sad that he didn't have more organic friendships in the community And I think everybody can recognize that is it organic? Are you buying your way to influence power and friendship? Nine, he didn't fully reinvest his proceeds in 2010 if you think about back at the time It was a dicey situation So if you arrive at a chunk of cash, the last thing you want to do is lose it So he fearing a double-dip recession after selling just hoarded cash for the most part and it was only until 2016 did he admit he invested 50% of the proceeds so by then he had missed out on a very healthy rally that probably cost him about $500,000 in lost gains So talk about adding salt in the wound after already missing out on five million to eleven million in Gains from holding on if you had held on and then another five hundred thousand.

That's a tough pill to swallow So when you're presented with a windfall, it's really hard to immediately put that money to work I felt the same way back in 2017 second half of 2017 when I sold my San Francisco rental property I sold it for two point seven four five million dollars and I walked away after fees and all that with about 1.8 million I had to pay obviously a mortgage that was like eight hundred ten thousand or something but 1.8 million is a lot of money and Actually, that's a very similar amount of money to what he got after taxes.

And so I was very methodical What I did was I invested about six hundred thousand in Municipal bonds right as safe as you can get double a triple a they're paying about three to three and a quarter percent After tax and then I bought about six hundred thousand dollars in large-cap high dividend paying stocks Which is my risk side and then I I think I invested no I know I invested five hundred fifty thousand in real estate crowdfunding in a diversified portfolio of 17 different Commercial real estate properties and I held about fifty thousand dollars in cash So that's what I did and it took me about I would say four or five months to reinvest that windfall So it didn't take me five six years like my friend did but you know, it was a really stressful process and then finally Taxes taxes taxes taxes taxes took so much away He sold his business for 2.5 million excluding the 300,000 earn out a year later But he only ended up with 1.75 million after paying federal and state taxes 2.75 million.

Hey great amount of money, but by selling your business you're essentially Surrendering yourself to the government and saying take all my money when you're operating your business You can find many many ways to reduce your taxable income. You can spend more money on Advertisement you can buy a heavy truck or SUV, you know for to take your clients around You can go to Greece to do your business off-site Whatever it is, you can spend money to reduce your taxable income legally So if you think about what the effective tax rate is Running your business versus after you sell your business There's a big difference and he was saying that by running his business his effective tax rate was closer to about 20% But when he sold the business he paid a 30% effective tax rate So a 10% effective tax rate difference can really add up over time over a seven-year period It's like doubling the value right in the world of 72 So think about taxes before you sell a business as well Because that can really get you going if you're gonna give so much to the government Especially if you believe that government is inefficient with your money So I hope you enjoyed that deep insightful feedback that I got that he has shared because we talked for hours Because I was just in a quandary on what to do and I know a lot of this is me Projecting myself and believing hey This is the right thing to do by keeping financial samurai and seeing whether entrepreneurship a little bit more entrepreneurship Will do wonders.

I want to try I want to try to see if I can make more money off financial samurai by tweaking the formula a bit from 90% fun 10% business to 70% fun 30% business and from a Increase of 10% to 30% that's a big jump relatively given what I've been used to for the past 10 years And so if you have a profitable business and you know What the path is going forward in other words if you work 10 more hours or produce this many more posts or?

Produce a new product once a year and you see that path to profitability continue you want to hold on for dear life Think about all the massive businesses in the world Mars Inc that creates pet food and candy or coca-cola. They were founded almost a hundred more than a hundred years ago and They survived through the bad times because during those bad times they use their cash Their smarts their experience to iterate and get better and come up with new products and new ideas and take more market share In a low interest rate environment.

It is imperative that you hold on to your cash generating assets Cash is so valuable when it's you know, the 10-year yield is only at one point five to one point nine percent It takes a lot a lot of capital to produce a certain amount of income for example 55,000 you need at a 5% interest rate 1.1 1 million to generate 55,000 but when interest rates fall to 2% you now need 2.75 million and when the interest rate falls to 1% you need 5.5 million in capital to generate that 55,000 so if you're still on the fence about starting a business, I highly encourage you to start and try You just never know what might happen.

Thanks so much everyone if you enjoyed this podcast I'd appreciate it positive review and I'll talk to you guys later