How Much Do You Get to Keep?

ts: Jordan, can you give a little bit of background on yourself to the audience please?
ja: Sure, Tim. First of all, thanks for having me. Secondly, I'll try and keep the introduction brief since that's not really why anyone's listening to this podcast. So I've been with EisnerAmper for a little over 17 years. I've spent those 17 years and the rest of my career, working with family owned and closely held businesses. I'm a tax partner by background and helping them with everything from their taxes on an annual basis to consulting on their business, to most importantly, helping many of my clients through transactions and ways to realize the value from the lifelong work of their family on the exit from their business.
ts:Well, I had a feeling we picked the right person for this segment of the series. And Jordan, there are two certainties in life, right, death and taxes. What are some things business owners should know about how much they might keep after a sale?
ja:Sure. So Tim, there are two certainties death and taxes, although with the current legislative environment right now, the certainty around what those taxes are, is a little bit in flux. So we'll be talking about it as the law currently exists today. Just as a disclaimer out there, things are in a state of flux. But I think what people should be aware of is that although we're focused on what you keep after a sale, what you do before the sale and how you plan for a sale and how you go through that process has an enormous impact on how much you get to walk away with. And that comes from preparing your business to be sold to the advisors and the process that you go through in making sure you understand what those net proceeds are projected to be and how each piece of the business deal that you negotiate impacts that.

So if you're working with a potential buyer and there's a provision, or a clause, or a change in the terms, what does that mean to your bottom line? That should always be the focus. When we work with business owners that are contemplating selling and working through a sales process, one of the first things we do is put together a template, which becomes the working document for the deal of how does everything affect what goes in my pocket? And the other thing that I think is really important for people to consider is deals are structured in a variety of different ways. And some of those include payments that are paid after the deal closes based on the performance of the business, earns out or installment obligations. And one of the things we tell our clients are make sure that you're comfortable with the amount you walk away with at closing, because that's the only amount that are generally guaranteed. So if that's not a number that you think is appropriate, then you need to reconsider the structure of the deal because those future payments aren't guaranteed.
ts:That makes a lot of sense to me. And as you alluded to, right, obviously the tax environment right now is definitely in flux, especially with the future rates that might be changing and this is a very complicated area, right? So we're not going to even go deep into a dive on this podcast series, but are there any like high level tax strategies that a business should consider?
ja: So I think if we were going to go through high level tax strategies, we'd need about a four hour podcast with you and I talking that no one would want to listen to Tim. So,
ts:I agree.
ja: We'll say it this way, the structure of the deal oftentimes is the most important part in determining what the taxes work out to be. So is it an asset deal? Is it a stock deal? Is it a stock deal treated as an asset deal for tax purposes? So I think one of the pieces of advice I would give is making sure that you, as the business owner understand what those different things are. Everyone comes to the same conclusion. I want to pay the least amount of tax as possible. And yes, that is ultimately what we try and get to in every deal. But making sure that the business provisions and some of the other items that are in there, just understanding how everything flows and what the impact is because you, the business owner are going to be the person that negotiates this deal and has to live with it. So making sure that you understand the impact of each of those on your bottom line is really the best piece of advice I can give.
ts:I appreciate that Jordan and always making sure you have the right trusted advisors in your corner is the right course of action in that regard as well too. And Jordan, do you have any parting words for our listeners on this subject?
ja:So Tim, my final thoughts would be that although we focused on how much do you take home at the end of the day, and how much do you realize from a sale of a business, I think there's an emotional part of selling a business that people need to understand as well. And the process can be quite daunting and very emotional. So I would encourage business owners to make sure that they're ready for the emotional toll. Oftentimes it's a lifetime's worth of work that goes into this. Or if it's a family business, multiple generations lifetime's worth of work and business becomes part of the family. It becomes part of everything they do. It's almost like a child in some respects. And to make sure that you're emotionally ready to sell that business, to part with that business and to see someone else ultimately run it, that can be just as important factors to take into consideration than the actual sale of the business itself.
ts: Hey Jordan, we appreciate it as always. And thank you for the valuable insight you have bestowed on our listeners today.
ja: My pleasure, Tim, happy to be here anytime.
ts: And thank you for listening to The Bottom Line. Part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics and join us for our next podcast, where we will cover what happens after your company is sold.

^{Transcribed by Rev.com}