Finding your walk-away number

You need a walk-away number when selling your business.

That's the minimum amount for which you would sell the business. Any less and you would say no and walk away. Anything more is a bonus.

Why?

You are vulnerable in negotiations if you don't have a clear idea of what you would sell for. It's like walking into a car dealership without a budget – you might do a deal you regret.

So you need a number in mind, and a mental 'line in the sand'.

This also forces co-founders to get aligned before a sale. If you have wildly different walk-away numbers, that will cause conflict and confusion when offers come in, so you need to discuss that up front. Read more about co-founder alignment here.

This is not about valuation – there's an important but separate exercise to work out what your business is worth and what a good or fair offer would be. Read more on valuation here.

This is much more personal.

Firstly, when we say the 'number', what do we mean? We’re talking cold, hard cash in your bank account on the day of completion, after taxes. We only care about up-front payments, so forget about contingent amounts like earn-outs.

So how can you go about working this out for yourself?

This is all about your personal financial needs and dreams. How much money do you need to make this sale worthwhile?

Often, this is an arbitrary number that they have stuck in their head. That can often be lead more by ego or status than thoughtful analysis. If this a round number like £1m or £10m, that's a giveaway!

You should consider any big expenses or financial goals first. For many people that's paying off the mortgage, fully funding their kids' education, or buying something specific like a holiday house.

Another big milestone that people consider is funding retirement. If you can safely never work again, that's a big achievement and a major factor in a sale. There are a number of retirement calculators online, that factor your age and monthly spending.

A simple shortcut is to use the 4% safe withdrawal rate. This assumes that you can safely withdraw 4% of your invested assets annually to fund your living costs, while still preserving the capital. So your invested assets from you walk-away number need to be x25 of your annual expenses for you to retire after the exit.

If you add these together, you have some money to fund big expenses and perhaps enough to fund retirement. If there are other financial considerations, you can add these in here too, and that gives your walk-away number.

Now is a good time to sense check your number against the potential valuation of the business.

Here's a worked example.

Remember, this is looking at the exit from a solely financial perspective. There are a ton of other factors, which are explored in The Time is Right: When to sell your company.

Finally, some advice on how to use the number. You should be firm – the whole point of this is to draw a line in the sand. You need to be prepared to walk away if the offers are not above your 'number'.

But firmness can turn to stubbornness. If you are getting multiple offers, all from keen buyers, and all around the same level... this is the market telling you what the business is worth.

If that is well below your walk-away number, you need to decide if you're happy to walk away and keep building the business until the valuation grows to meet your expectations, or take the lower offer on the table.