Should I Scale to $10M or Sell at $5M? The Risk/Reward of Holding Your Business Until 2028.
For the founder of a lower-middle market company, the journey to $5M in revenue is a grind. The journey to $10M is a metamorphosis.
At SeaRidge Advisory, we frequently encounter owners at this exact crossroads. You have built a successful, profitable engine. You are tired, but you are ambitious. You look at the market and ask the definitive question:
"Do I take the chips off the table now, or do I double down for another 3-5 years to hit the 'Big Number'?"
This is not a question of effort; it is a question of Risk-Adjusted Return. To answer it, we must strip away the emotion and look at the cold mathematics of Multiple Arbitrage versus the Operational Risks of scaling.
1. The Math of "Multiple Arbitrage" (The Bull Case)
Why do owners push for growth despite the exhaustion? Because in M&A, size matters. Institutional buyers (Private Equity) pay a premium for scale because scale implies safety.
Consider two manufacturing companies with the exact same profit margin:
Scenario A: The "Lifestyle" Exit (Current State)
Revenue: $10M
EBITDA: $2M
Market Multiple: 5.0x
Exit Valuation: $10 Million
Scenario B: The "Platform" Exit (Future State)
Revenue: $25M
EBITDA: $5M
Market Multiple: 8.0x (The "Size Premium")
Exit Valuation: $40 Million
The Arbitrage: By growing EBITDA by 2.5x (from $2M to $5M), the Enterprise Value grew by 4.0x (from $10M to $40M).
This "Arbitrage" is the siren song of the middle market. It is why Private Equity firms exist. They buy Scenario A, build it into Scenario B, and keep the difference. The question is: Can you do that yourself?
2. The "Valley of Death": The Cost of Scaling
The math above is seductive, but it assumes a straight line. Reality is a J-Curve. To get from $10M to $25M in revenue, you cannot simply "work harder." You must fundamentally break your business to rebuild it.
We call this phase the "Valley of Death."
Infrastructure Bloat: You need a CFO, not a bookkeeper. You need an ERP system, not QuickBooks. You need a Sales Director, not just you making calls.
Margin Compression: These investments cost money before they generate revenue. It is common for a company to grow from $10M to $15M revenue while seeing their EBITDA drop temporarily due to overhead.
The Risk: If you hit a recession during this investment phase, you have higher fixed costs and lower cash reserves. You are fragile.
Strategic Insight: For industrial firms, this often means heavy Capital Expenditure (machines, facility expansion). Before you commit to a $5M equipment loan, consult The Precision Firm to model the depreciation impact on your valuation.
3. The Macro Variable: 2026 vs. 2028
If you decide to hold and grow, you are making a bet on the 2028 economy. You must weigh the internal reward against the external environment.
The 2026 Exit (The "Bird in Hand")
Pros: Taxes are known (20% Federal Cap Gains). Interest rates have stabilized. Buyer demand is high due to PE "dry powder."
Cons: You leave the "Multiple Arbitrage" upside on the table.
The 2028 Exit (The "Two in the Bush")
Pros: Potential for the $40M exit.
Cons:
The "Silver Tsunami": By 2028, a massive wave of Baby Boomers will be forced to sell for health/age reasons. You will be selling into a flooded market, which could depress multiples.
Tax Uncertainty: The 2025/2026 tax cuts may expire or be reversed, potentially increasing the capital gains rate.
Recession Cycle: The average economic expansion lasts 5–7 years. By 2028, the probability of a cyclical downturn increases statistically.
4. The "Burnout" Factor: The Human Capital Audit
Beyond the spreadsheet, there is the human element. We often see the "Founder's Paradox": The drive required to build the business is not the same as the patience required to scale it.
Ask yourself three questions:
Do I have the energy? Scaling to $25M requires "Wartime CEO" energy. If you are already looking at golf course real estate, you will fail.
Is my wealth concentrated? If 90% of your net worth is in this business, "doubling down" is reckless portfolio management. Selling now allows you to diversify.
Is my team ready? Do you have the "Layer-2" management team to execute the growth, or does it all depend on you?
Strategic Insight: In professional services, burnout leads to client attrition. If you are the "Rainmaker," you cannot scale without replacing yourself. Visit The Alignment Firm for strategies on building a scalable sales engine.
5. The Hybrid Solution: Partial Recapitalization
It does not have to be "All or Nothing."
In 2026, the most popular strategy for owners facing this dilemma is the Partial Recapitalization (Private Equity Minority Deal).
The Deal: You sell 60% of the business to a Private Equity partner now.
The Cash: You take $6M off the table (de-risking your life).
The Growth: You stay on as CEO with the PE firm’s capital and mentorship to chase the $40M target.
The Second Bite: You own 40% of the upside. If you hit the target, your second exit is massive.
This allows you to chase the "Multiple Arbitrage" without betting your entire life savings on it.
Conclusion: Don't Guess, Model It.
The decision to Hold or Sell should not be made over dinner; it should be made in a spreadsheet.
At SeaRidge Advisory, we offer a proprietary "Hold vs. Sell Analysis." We model your projected growth, factor in the cost of scaling, apply the estimated 2028 multiples, and discount it back to today's dollars.
Sometimes, the math says "Hold." Sometimes, it screams "Sell."
Do not gamble with your legacy. Contact SeaRidge Advisory today to run the numbers.
Frequently Asked Questions (FAQ)
1. What is the "EBITDA Cliff" for higher multiples? While it varies by industry, the first major jump usually happens at $3M EBITDA (moving from 4x to 6x). The second major jump happens at $5M EBITDA (moving to 8x+). Institutional buyers have minimum thresholds for their funds; crossing these lines unlocks new bidders.
2. Can I grow through acquisition instead of organic growth? Yes. This is a "Buy and Build" strategy. However, buying competitors requires capital and integration expertise. If you have never bought a company before, doing it alone is high-risk.
3. How does a recession affect the "Hold" strategy? If you hold for 3 years and a recession hits in Year 2, your exit timeline likely extends by another 3–4 years (waiting for earnings to recover). A "3-year plan" can quickly become a "7-year sentence."
