Planning Before Selling Your Business

Separate the headline price from what you can use

A sale can look like one payday and still run on two clocks: when tax is recognized and when cash becomes available. Escrow, holdbacks, debt, transaction costs, and earnouts can all sit between the announced price and the money you can spend.

Build a proceeds schedule before committing to major personal decisions. Show expected cash at closing, later payments, professional fees, and the tax reserve separately.

Know what is being sold

A stock sale and an asset sale can produce different tax results. A business asset sale generally needs to be allocated among the assets sold; the character of the gain depends on the assets and applicable rules. Ask the CPA and transaction attorney to model the structure in the actual documents. IRS Publication 544.

Do not treat a letter of intent's price as an after-tax estimate. Also separate compensation for continued employment from proceeds for ownership.

Payment timing needs its own review

Receiving money over time does not mean every tax item waits. Installment-sale rules have exceptions, and items such as depreciation recapture can be recognized in the year of sale. Contingent payments require additional analysis. IRS Publication 537.

Ask the tax team to identify when estimated payments are due and which cash is available to fund them. An earnout that has not been paid is not a tax reserve.

Resolve special planning questions early

If qualified small business stock, gifts, charitable transfers, or a reorganization may matter, raise those questions with counsel before the transaction becomes binding. Do not assume a headline exclusion amount applies to your shares or that a late transfer changes the tax result.

Gather your ownership records, basis documentation, entity history, and draft transaction documents. A clear record helps the specialists evaluate the actual facts.

Prepare for life after closing

Write down the decisions that the proceeds must support: living expenses, future work, debt repayment, family commitments, charitable goals, and investment risk. Keep near-term spending and taxes separate from long-term investment decisions.

Before signing, ask:

1. What will I receive at closing, and what remains contingent?
2. Who recognizes each tax item, and when?
3. What happens if the delayed payment is smaller or later than expected?
4. How will my family's cash flow change when business income stops?
5. Which decisions need to be made before closing, and which can wait?

Planning your next step

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This is educational information, not personalized tax, legal, or investment advice. See disclosures.