The price is what you agree to. The structure is what you keep. Justin Esshaki, an attorney and CPA, helps Michigan owners prepare for a sale, compare offers on an after-tax basis, negotiate the purchase agreement and close.
Selling a business is often the largest financial event of an owner’s life. Buyers and their advisors do this regularly; most sellers do it once. The decisions that most affect what you keep, such as asset versus stock sale, purchase price allocation, earnouts and seller financing, are usually set in the letter of intent, long before the final agreement is signed.
Buyers often prefer to buy assets, which can give them new depreciation deductions and leave old liabilities behind. Sellers often prefer to sell stock or membership interests, which is more likely to produce capital gain treatment. The structure, and how the price is allocated among equipment, inventory, goodwill and non-compete agreements, can change the seller’s after-tax proceeds significantly.
A letter of intent may be described as non-binding, but it sets expectations both sides rarely revisit. Reviewing it with legal and tax advice before you sign is the best opportunity to protect the price you keep.
A well-prepared business sells more smoothly. Clean entity records, current agreements, organized financial statements and resolved tax issues reduce surprises in due diligence and give buyers fewer reasons to renegotiate. Justin guides owners through every phase, from getting ready to sell to the transition agreements after closing.
Cleaning up entity records, contracts, ownership and tax issues before buyers start due diligence.
Comparing offers by what you actually keep, not just the headline price.
Evaluating the structure buyers propose and negotiating terms that improve your after-tax result.
Negotiating how the price is allocated among asset classes, which affects both sides’ taxes.
Reviewing and negotiating the LOI before you commit to its key terms.
Drafting and negotiating representations, warranties, indemnities, escrows and closing conditions.
Structuring contingent payments and installment terms, including installment sale treatment where available.
Closing documents, employment or consulting agreements, non-competes and post-closing obligations.
You see what each offer means for you after federal, Michigan and other taxes, before you choose one.
Purchase price allocation is negotiated by someone who understands its effect on both your return and the buyer’s.
The same professional who negotiates the deal can make sure the sale is reported correctly on your tax return.
Clean up entity records, contracts and financials before buyers look.
Model the after-tax outcome of each offer and negotiate the letter of intent.
Draft and negotiate the purchase agreement and manage due diligence.
Complete the closing and the transition agreements that follow.
Sellers often prefer stock or membership interest sales because they are more likely to produce capital gain treatment and leave liabilities with the buyer. Buyers often prefer asset sales for the tax deductions and liability protection. The right answer depends on your entity type, assets and the price, and is often a negotiation.
In an asset sale, the price is divided among categories such as equipment, inventory, goodwill and non-compete agreements. Each category can be taxed differently, so the allocation can change how much tax the seller pays. Buyer and seller generally report the same allocation to the IRS.
Ideally before you sign a letter of intent, and earlier if you plan to sell within a few years. Preparation and early structuring decisions have the largest effect on the outcome.
If the buyer pays part of the price over time, installment sale treatment may allow you to recognize the gain as payments are received. Not all assets qualify, and there are risks to seller financing that should be weighed.
An earnout is part of the price that is paid later only if the business hits certain targets after the sale. Earnouts can bridge a valuation gap, but the targets, measurement and protections need careful drafting.
Our focus is helping owners sell their businesses, but we also advise buyers on structure, due diligence and purchase agreements.
Tell us briefly about your business and what you need. We’ll reply within one business day.