Avoid the disappointment many sellers experience
You dream of one day selling your company. Part of that dream is what it will mean to you in terms of financial independence. Ask yourself, then why is it study after study reports that the vast majority of private company owners that sell their company aren’t happy with the outcome?
There are several reasons for this and our many prior blog posts identify them. But one particular reason is as the final date approaches for selling the company, the seller starts to see specifically what the Net proceeds are going to be that they will receive as a result of the sale and they are negatively surprised by the amount being much lower than they dreamed of.
You can avoid this typical surprise and disappointment by well in advance of starting the exit process developing your Gross to Net Proceeds Model. Here are some of the key elements you will have in your specific model:
Gross Proceeds – this is the amount you hope to receive from a third party. Your model can be built to allow you to change this to various scenarios.
Minus: (these are the costs/dollars that will be taken out of the Gross Proceeds to result in your Net)
- Deal Costs – costs such as hiring an investment banker to represent you in the sale, hiring an M&A attorney and getting transaction help from your CPA or other advisors
- Loan/Debt Paydown – acquirers generally won’t assume debt you have on your business. Typical agreement language will say the acquirer is buying your company “on a debt free basis”. So any debt on your business will be taken from your gross proceeds.
- Co-owner/Shareholder Payments – if you have co-owners or shareholders, what amount of the proceeds from the transaction will go directly to them
- Employee Incentives – many private company owners have plans to reward all or some of their employees upon the sale of their company. This amount needs to be subtracted from the gross proceeds you will receive
- Taxes – calculating your Federal and State tax liability can be a meaningful reduction to the net amount you will personally receive
Every company sale is unique but the items above are the most common ones every business owner will experience. Contact us to help build your specific Gross to Net Proceeds Model or contact your CPA and engage their help. Don’t wait until you’re in the middle of a transaction with a third party only to find out you’re not going to be happy with the net proceeds you will personally enjoy. You want to be euphoric one day from the sale of your company, take this important step early on in your exit process.
