The Overlooked Cost of One More Year - Exit Timing Math for Business Owners

“I’ll sell next year when revenues hit $10 million.” We hear this from business owners constantly, and we’ve tracked what happens next. In our experience advising mid-market exits, owners who chase “one more year of growth” often end up selling for less than they would have received had they acted when first ready. The math behind exit timing is counterintuitive, and understanding it can mean the difference between a successful exit and a disappointing one.

Executive Summary

The decision to delay a business exit by “just one more year” is among the most consequential and frequently miscalculated choices business owners make. While the logic seems sound (more growth equals higher valuation), the complete expected value calculation tells a different story.

This analysis examines the true cost of exit delays through four critical lenses: market risk, personal risk, opportunity cost, and execution uncertainty. We provide a framework for thinking about these factors, though we want to be clear upfront: the specific percentages and probabilities we use are illustrative estimates based on our advisory experience and available research, not precise measurements. Your actual risk profile will vary significantly based on your industry, health, business characteristics, and market conditions.

Our framework suggests that for many businesses valued between $2 million and $20 million, the break-even growth rate required to justify a one-year delay may exceed what owners realistically achieve. But this conclusion depends heavily on assumptions that deserve scrutiny. We’ll walk through the framework so you can adjust the inputs based on your situation and reach your own informed conclusion.

The goal isn’t to pressure premature exits but to ensure owners make timing decisions with visibility into risks that are easy to overlook. When owners understand the full range of scenarios (including adverse ones they prefer not to contemplate), the calculation often shifts in ways they didn’t expect.

Introduction

Every business owner planning an exit faces a deceptively simple question: sell now or wait for better conditions? The answer seems obvious: wait for higher revenues, stronger EBITDA, or a more favorable market. This reasoning has an intuitive appeal that makes it worth examining carefully.

The problem is that this logic can treat future growth as more certain than it is while discounting future risks as unlikely. Behavioral economists call this “optimism bias,” and business owners may be particularly susceptible to it. After years of building a company through determination and calculated risk-taking, owners often believe they can will one more year of strong performance into existence. Sometimes they’re right. The question is whether you’re making an informed bet or a hopeful one.

Exit timing isn’t just about potential upside. It’s an expected value calculation that should account for multiple scenarios, including ones owners prefer not to contemplate. What if the economy enters recession? What if a key customer leaves? What if the owner experiences a health crisis? What if a well-funded competitor enters the market? What if buyer appetite shifts?

Each of these risks may be individually unlikely, but collectively they deserve consideration. Based on our advisory experience and available research on business disruption rates, we estimate that the aggregate probability of a material adverse event (market disruption, personal health crisis, or significant business complication) within any given year falls somewhere in the 20-40% range for typical mid-market business owners, though this varies enormously based on individual circumstances. We’ll break down the components of this estimate so you can assess whether it applies to your situation.

Our purpose here isn’t to advocate for premature exits. The right exit timing depends on individual circumstances, market conditions, and personal goals. Rather, we aim to provide an analytical framework for approaching this decision more systematically. When owners work through the complete calculation, some discover that the expected value of delay may be lower than they assumed, and that’s information worth having before making a consequential decision.

The Four Categories of Delay Cost

Understanding why exit delays can destroy value requires examining four distinct risk categories. Each operates somewhat independently, and together they can compound into a significant headwind against the “one more year” strategy. We’ll examine each category, noting where our estimates rest on solid data versus professional judgment.

Market Risk: The Macro Factors Beyond Your Control

Business owners spend years building companies they control, which can create the illusion that exit outcomes are equally within their control. They’re not. M&A markets are cyclical, and timing your exit during a seller’s market versus a buyer’s market can significantly affect valuations.

Transaction databases like GF Data and PitchBook track EBITDA multiples for lower middle market transactions (typically $5-50 million in enterprise value). While specific ranges vary considerably by industry, deal size, and time period, these sources document meaningful variation over market cycles. An owner waiting for “one more year” of growth could capture that growth only to see multiples compress, potentially offsetting the value of the additional year’s work.

Economic cycle timing adds another layer of uncertainty. Recent U.S. expansions have varied widely in length—from approximately 3 years (the COVID-shortened cycle) to over 10 years (2009-2019). This variability is precisely why assumptions like “we probably have 2 more years of growth” deserve skepticism. Cycles are mean-reverting over long periods, but predicting when a turn will occur is notoriously difficult. If you’re currently several years into an expansion, the probability of eventually selling into a recession increases with each passing year. Recessions don’t just reduce valuations; they can freeze transaction activity entirely, as buyers become scarce and financing tightens.

Interest rates compound this effect for transactions involving debt. The relationship between rates and deal capacity varies by financing structure and buyer type, but rising rates generally reduce what leveraged buyers can afford to pay. Equity-only buyers and strategic acquirers who use balance sheet cash are less affected. An owner who delayed an exit in 2021 to “capture more growth” in 2022 faced not only potential multiple compression but also the fastest rate hiking cycle in decades. The point isn’t that rates will necessarily rise during your delay period: it’s that rate movements are unpredictable and represent a risk factor outside your control.

The key insight is that good selling environments tend not to persist indefinitely. Owners who wait for “one more year” during favorable conditions are accepting the risk that conditions may be less favorable when they eventually transact.

Personal Risk: The Vulnerabilities You Don’t Discuss

No business owner wants to contemplate their own mortality, disability, or burnout. But these risks are real, and they don’t pause politely while you complete one more year of growth.

Health risk data deserves careful interpretation. According to Social Security Administration actuarial tables and CDC health statistics, men and women in their 50s and 60s face non-trivial probabilities of experiencing significant health events. The exact percentages depend heavily on individual health status, family history, and lifestyle factors. For serious health events that would meaningfully impair business leadership over a five-year window, probabilities likely range from 10-25% for typical business owners in their mid-50s to higher for older owners or those with existing health conditions. These are rough ranges: your personal physician could provide more relevant estimates based on your specific circumstances.

Beyond health events, burnout, family crises, or simply losing the drive that made the business successful represent additional risks that are harder to quantify but very real. After years of intense focus, some owners find their motivation waning just as they approach the finish line.

When personal circumstances force an exit, outcomes typically suffer. A planned, well-prepared exit might take 18 to 24 months and yield full market value. A forced exit due to health issues or personal crisis often compresses into 6 to 9 months. In our advisory practice, we’ve observed that owners who accelerate exits due to personal circumstances often receive less than comparable planned transactions, though we want to be cautious about citing specific percentages, as our sample size is limited and each situation has unique factors. The discount likely reflects both the compressed timeline (limiting buyer pool) and reduced negotiating power.

The “key person risk” works both ways. Owners worry about losing key employees, but they often fail to recognize that they themselves are the ultimate key person. Every year of delay is another year where the owner’s health, motivation, and life circumstances must cooperate with the exit plan.

Opportunity Cost: The Returns You’re Forgoing

When owners contemplate exit timing, they typically compare two scenarios: sell now at current value, or sell later at higher value. But this comparison ignores what happens to the proceeds in each scenario.

Consider an owner who could sell today for $8 million after taxes. If they delay one year hoping to sell for $9 million, they’re not just betting on that additional $1 million. They’re also forgoing a year of returns on the $8 million that could already be working for them.

This calculation requires several assumptions worth examining:

Investment return assumption: We use 7% as a reasonable long-term return expectation for a diversified portfolio, based on historical equity market returns. But this assumes proceeds are invested promptly and that you’re comfortable with equity market risk. A more conservative allocation might yield 4-5%; a more aggressive one might target 8-10%. Your expected return should reflect your actual post-exit investment strategy.

Tax and transaction cost assumption: After federal and state capital gains taxes (typically 20-25% federal plus state taxes varying from 0-13%) plus transaction costs (typically 2-5% including advisory fees, legal, and other closing costs), most owners realize 55-70% of gross sale proceeds. We use 65% as an illustrative midpoint, but your effective rate depends on your state, holding period, basis, and deal structure.

Deployment timing: In reality, capital deployment takes time. You won’t earn full returns from day one. Adjust accordingly.

With these caveats, the illustrative math works as follows: At 7% returns, $5.2 million in net proceeds (65% of $8 million) generates approximately $364,000 in the first year. The owner isn’t comparing $8 million today versus $9 million next year: they’re comparing $8.36 million (proceeds plus investment returns) versus $9 million (if growth targets are achieved).

The comparison becomes more nuanced when you account for probability. If there’s a 70% chance of achieving the growth target and a 30% chance of flat or declining performance, the expected value calculation shifts further. The point isn’t to provide a precise answer: it’s to ensure you’re comparing like scenarios rather than certain current value against optimistic future value.

Execution Uncertainty: The Transaction That Never Closes

The final category of delay cost is perhaps the most overlooked: the risk that the transaction doesn’t close as planned.

M&A processes fail for many reasons—buyer financing falls through, due diligence uncovers issues, negotiations collapse over deal terms, economic conditions shift mid-process. Published data on failure rates varies significantly based on how “initiated transaction” is defined. Research from M&A data providers suggests that:

• Preliminary discussions and early-stage conversations have high abandonment rates (perhaps 50-70% never advance to LOI)
• Signed Letters of Intent fail to close approximately 20-40% of the time, depending on deal complexity and financing requirements
• Deals with signed definitive agreements have much higher close rates, typically 85-95%

These ranges are broad because transaction outcomes depend heavily on deal-specific factors. The relevant point is that each year of delay eventually means running another transaction process with its attendant risks.

The execution risk compounds in subtle ways over time. The owner who delays is one year older. Key employees who knew an exit was coming may have departed. The business that was a “clean” acquisition target may have accumulated complications. The advisor team that was ready to execute may have moved on to other engagements.

The Break-Even Growth Calculation: An Illustrative Framework

Given these four categories of delay cost, how much growth would an owner need to achieve to justify waiting one more year? We offer a framework for this calculation, with important caveats about its limitations.

This is an illustrative model, not a precise prediction. The specific percentages we use reflect our professional judgment based on advisory experience, but they are estimates that could reasonably vary by factors of two or more depending on your circumstances. The value of the framework lies in making assumptions explicit so you can adjust them, not in the specific outputs.

Let’s construct an illustrative scenario for an owner with a business currently valued at $10 million who is contemplating a one-year delay.

Market Risk Adjustment: We assume a 15-25% probability of meaningful multiple compression within one year. The impact of such compression might be a 0.5-1.0 turn reduction in EBITDA multiple, translating to roughly 5-10% of enterprise value for a typical 5-6x multiple transaction. We use 6% as an illustrative expected impact (probability times severity). Your adjustment should reflect your industry’s cyclicality and current market positioning relative to cycle.

Personal Risk Adjustment: We assume a 3-7% annual probability of a health or personal event requiring accelerated exit, with such events reducing proceeds by roughly 20-40%. We use 1.5% as an illustrative expected impact. Your adjustment should reflect your age, health status, and family circumstances.

Opportunity Cost: Using 7% returns on after-tax proceeds, with a 65% after-tax retention rate, the opportunity cost on a $10 million transaction is approximately $455,000 (7% × $6.5 million). Adjust based on your expected investment returns and tax situation.

Execution Risk Adjustment: We assume a 5-15% probability of first transaction failure requiring a restart, with restart transactions typically closing at 10-20% lower values. We use 1.5% as an illustrative expected impact. This risk is higher for deals requiring significant financing and lower for strategic transactions with committed buyers.

Combining these illustrative factors:

This illustrative analysis suggests that under these assumptions, the owner would need approximately 13.5% growth in enterprise value merely to break even with the current exit option.

Critical caveats on this calculation:

1. Sensitivity to assumptions: If you believe market risk is lower (say, 10% probability rather than 20%), your break-even drops meaningfully. If you’re younger and healthier, personal risk adjustments should be smaller. Run your own numbers with assumptions you believe are realistic.

2. The framework omits some factors: We haven’t quantified the value of additional time to prepare the business for sale, potential tax optimization strategies, or the psychological readiness component. These could cut either direction.

3. Growth rates vary enormously by industry: Enterprise value growth rates range from low single digits for mature businesses in stable industries to 30%+ for high-growth technology companies. A 13.5% hurdle rate is easily achievable for some businesses and nearly impossible for others.

4. Risk isn’t just about expected value: Even if the expected value of delay is slightly positive, you might rationally prefer certainty to a gamble with the same expected value. Risk tolerance is personal.

The framework’s value lies in forcing explicit consideration of factors that owners often overlook, not in producing a precise answer. If your honest assessment of the inputs still suggests delay makes sense, that’s useful information. If the calculation reveals that delay requires growth rates you’re unlikely to achieve, that’s equally useful.

Decision Framework: When Waiting May Actually Make Sense

Despite the headwinds, there are circumstances where waiting genuinely creates value. Recognizing these situations and distinguishing them from wishful thinking is necessary for making objective timing decisions.

Identifiable Value Inflection Points: If your business is approaching a specific, concrete milestone that will materially change buyer perception, waiting may be justified. Examples include:

• Signing a transformative contract (not “we might sign” but “we have verbal agreement and expect to close in Q2”)
• Launching a product that opens new markets
• Completing certification or regulatory approval that enables new revenue streams
• Crossing a revenue or profitability threshold that changes your buyer universe

The key distinction is specificity and probability. “We’re about to grow” is not an inflection point. “We’re signing a three-year contract with a Fortune 500 customer in Q2 that will add $2 million in recurring revenue” is, though even then, assess the probability of the deal actually closing.

Addressable Value Detractors: If your business has specific issues depressing value and you have a concrete, time-bound plan to address them, waiting to execute that plan may be worthwhile. Common detractors include:

• Customer concentration (top customer exceeds 20-30% of revenue): Reducing this through new customer acquisition or existing customer diversification typically takes 12-24 months
• Key person dependency (owner responsible for majority of customer relationships or technical decisions): Building management depth typically takes 12-18 months of deliberate effort
• Deferred capital investments: Addressing these before sale removes buyer discount and may cost less than the discount they’d extract
• Pending litigation or regulatory issues: Resolution timing varies; quantify the expected impact and timeline

For each detractor, honestly assess: Can this actually be resolved in the timeframe you’re considering? What’s the probability of success? Is the expected value improvement greater than the delay costs calculated above?

Buyer-Specific Timing: Some exits are optimally timed to specific buyer circumstances rather than general market conditions.

• Strategic buyers often operate on their own cycles: post-integration periods following their own acquisitions, or post-capital raise when they have deployment pressure
• Private equity firms have fund deployment timelines; a firm that just closed a fund may be more aggressive than one approaching end of fund life
• Industry consolidators sometimes announce acquisition programs that represent windows of heightened interest

If you have specific knowledge of buyer timing, factor that into your analysis. But be cautious about waiting for hypothetical future buyer interest: “Private equity will probably become interested in our industry” is speculation, not actionable timing intelligence.

Tax Optimization Opportunities: Certain tax strategies require time to implement:

• Qualifying for long-term capital gains treatment (requires one-year holding period on certain instruments)
• QSBS exclusion optimization (requires meeting holding period and other requirements)
• State tax planning (some owners relocate to no-income-tax states, though this typically requires establishing genuine residence 12-24 months before sale)
• Installment sale structuring to spread gains across tax years

These strategies can provide meaningful savings but require planning and professional guidance. Consult your tax advisor about strategies applicable to your situation before using tax optimization as a delay rationale.

A note on intermediate options: We’ve focused on the binary sell/wait decision, but alternatives exist. Some owners take significant dividends while continuing to operate, reducing personal risk without a full exit. Others bring in financial partners through minority recapitalizations, monetizing a portion of their equity while maintaining upside. These structures add complexity and may not be suitable for all businesses, but they can address some delay motivations without accepting all delay risks.

Risks of Acting on This Framework

Before implementing any exit timeline acceleration, consider potential downsides of moving quickly:

Confidentiality breaches: Actively marketing your business creates confidentiality risk. Employees, customers, and competitors may learn of your exit intentions, potentially damaging the business even if no transaction closes. Experienced M&A advisors use controlled processes to minimize this risk, but it cannot be eliminated entirely.

Advisor conflicts and costs: Getting “real buyer perspectives” as we suggest below requires engaging buyers or their representatives. This process has costs: advisor fees, management time, and the risk that preliminary conversations don’t lead to transactions. Some owners conduct informal outreach independently, but this carries its own risks around confidentiality and positioning. Understand the process costs before initiating.

Undervaluing in haste: While we’ve stressed the risks of delay, moving too quickly has its own dangers. Owners who rush to market without adequate preparation may leave value on the table. A business that could command premium multiples with 6-12 months of preparation might sell at a discount if brought to market prematurely.

Psychological readiness: Exit timing isn’t purely financial. Owners who are psychologically unprepared for exit may sabotage their own transactions or struggle with post-sale regret. If you’re uncertain about whether you actually want to exit, resolve that question before optimizing timing.

Actionable Takeaways

Translating this analysis into practical action requires honest self-assessment and structured decision-making.

Quantify your delay rationale. Whatever reason you’re using to justify waiting, attach specific numbers to it. How much value increase do you expect? What’s the probability of achieving it? How long will it take? If you can’t answer these questions with specifics, you may be operating on hope rather than analysis.

Calculate your personal break-even using adjusted assumptions. Use the framework above as a starting point, but adjust each input based on your specific circumstances. Be honest about your health, your industry’s cyclicality, and your realistic growth expectations. If required growth exceeds probable growth, delay may destroy expected value.

Set a decision deadline with accountability. The “one more year” trap persists because it never forces a final decision. Establish a specific date by which you will either initiate an exit process or consciously recommit to continued ownership for defined reasons. Consider sharing this deadline with an advisor, board member, or trusted colleague: external accountability makes deadlines more effective. Written commitment helps avoid perpetual delay.

Stress test your assumptions. Whatever growth you’re projecting, model a scenario at 70% of that growth. Whatever timeline you’re assuming, model it taking 50% longer. Whatever probability you’re assigning to success, model it at 20 percentage points lower. If your decision still favors delay after these adjustments, it may genuinely be the right choice.

Understand valuation realities before deciding. Many owners operate with outdated or optimistic valuation expectations. Before concluding you should wait for higher value, understand what buyers would actually pay today. This might involve engaging an M&A advisor for a preliminary assessment, though be aware that advisors have their own incentives (success-fee-based advisors may favor faster timelines; hourly advisors may favor extended engagements). Consider getting multiple perspectives and be skeptical of outlier valuations, either high or low.

Conclusion

The “one more year” decision deserves more rigor than it typically receives. Business owners who have spent years making sophisticated operational decisions sometimes approach exit timing with surprising casualness, defaulting to intuition and optimism rather than structured analysis.

The expected value calculation for exit delay should account for market risk, personal risk, opportunity cost, and execution uncertainty. When these factors are considered (even acknowledging significant uncertainty in the estimates), the break-even growth rate for justifying delay may exceed what many owners will realistically achieve.

This doesn’t mean every owner should sell immediately. Genuine value inflection points, addressable value detractors, specific buyer timing, and tax optimization can all justify strategic delays. Moving too quickly carries its own risks around confidentiality, preparation quality, and psychological readiness. The goal isn’t premature action but informed decision-making: understanding the full range of considerations so that delay is a conscious choice rather than a default.

We should also acknowledge what this analysis cannot tell you: whether exiting is right for you at all. This framework assumes you’ve decided to exit and are optimizing timing. If you’re uncertain whether to exit, that’s a more fundamental question that involves personal goals, financial needs, and life planning beyond the scope of this article.

If you’re telling yourself “one more year,” we encourage you to work through the framework with your own assumptions. You may find that waiting costs more than you expected, or you may find that your specific circumstances genuinely justify delay. Either conclusion is valuable. The only outcome to avoid is defaulting into delay without having done the analysis.