Carie Pace, Managing Partner at Alpina Tax & Accounting Services.
A business owner spent 15 years building a successful company and received a $10 million acquisition offer. Revenue and profitability were strong, and the buyer was well-qualified. On the surface, the transaction appeared to be a successful exit.
However, the business had one critical weakness: no exit planning had been done in advance.
The company was structured as a C-corporation, and the deal was negotiated as an asset sale, something most buyers prefer. At that stage, the owner focused on closing the deal rather than evaluating the tax implications of the structure.
Why Did the Owner Pay So Much in Taxes?
Two words: the structure, the transaction triggered double taxation:
- The corporation paid tax on the gain at the corporate level
- The remaining proceeds were distributed to the owner
- The owner paid tax again at the individual level
This resulted in an effective tax rate of approximately 45% to 50%.
On a $10 million sale, that meant:
$4.5M to $5M paid in taxes
How Could the Tax Outcome Have Been Improved?
One strategic change could have significantly improved the outcome.
If the owner had:
- Reviewed and adjusted the entity structure
- Positioned the transaction for a stock sale
- Planned for capital gains treatment
The tax result could have been materially different.
With proper planning, the total tax liability may have been reduced to approximately $2.5M to $3M, creating potential savings of $1M to $2M+.
The business, the buyer, and the sale price would have remained the same. The structure changed.
Why Do Business Owners Miss This Opportunity?
This situation is common.
Most business owners focus on:
- Growing revenue
- Managing operations
- Increasing profitability
Exit planning is often delayed until a sale becomes imminent.
At that point:
- Structural changes may trigger additional taxes
- Deal terms are largely driven by the buyer
- Planning flexibility is significantly reduced
In short, the most valuable planning window has already closed.
When Should Exit Planning Begin?
Exit planning should begin years before a sale, not during negotiations.
Key areas that should be reviewed early include:
- Entity structure
- Asset ownership
- Tax elections
- Deal structure scenarios
These decisions directly impact how a transaction is taxed and how much the owner ultimately retains.
What Is the Key Lesson for Business Owners?
You only sell your business once.
The difference between a planned exit and a reactive one is often measured in seven figures.
The real question is not whether your business is valuable.
It is whether your current structure is designed to protect that value when you sell.
If you are considering selling your business in the next 2 to 10 years, the time to review your structure is now…….not when a buyer is at the table.