Welcome back to another edition of The Wise Exit newsletter. Here’s what we’re covering this week:

Let’s dive in.

Selling Your Business Isn’t Black and White

On a recent episode of Wise Up on M&A, my partner Todd Sullivan sat down with Stephanie Horwitz Reuveni to break down what really happens when a business changes hands. One of the biggest misconceptions Todd sees with business owners is the belief that an acquisition is black and white: you either sold your company or you didn’t.

In reality, most acquisitions have structure. Part of your payout might be cash at closing, but part of it might come as rolled equity, where you keep a piece of the business going forward. It might come as a seller note, where you lend the buyer money and get paid back over time. Or it might come as an earnout.

For anyone unfamiliar, an earnout ties a portion of your sale price to performance targets after closing, usually over one to three years.

That means you still care a lot about how the business performs after you sell, because your full payout depends on it.

How involved you stay depends on the deal. Some earnouts keep you running the business day to day, working to hit the targets yourself. In others, the buyer takes over, and your payout depends on decisions you’re no longer making. That’s why we hear the same warning from Exited Founders all the time: be smart about what your earnout looks like.

As Todd put it, it all comes down to risk versus price.

If you agree to get paid at a future date, you’re taking on risk, and that risk can be negotiated into a higher overall purchase price. If you want an all-cash deal, you’re shifting the risk to the buyer, and the price will likely come down.

Neither option is right or wrong. It’s about deciding which risk you’re willing to carry.

That’s where preparation comes in. Buyers don’t care that your taxes are filed. They care about the story your numbers tell. If part of your payout could be tied to how the business performs, you need to know those numbers cold long before a buyer puts a structure in front of you.

If you want to hear Todd break it all down, watch the full episode on YouTube or listen on Apple Podcasts.

1️⃣ If a buyer made an offer tomorrow, how much of your payout would you be comfortable receiving after closing instead of at closing?

2️⃣ Would you rather take on more risk for a higher price, or less risk for a lower one?

3️⃣ If part of your payout depended on how the business performs after you sell, do your numbers today tell a clear story?

4️⃣ After a sale, would you want to stay in the seat working toward the targets, or would you rather step away?

5️⃣ If someone pitched you a “merger,” do you know who would hold the board votes, run things day to day, and cast the tie-breaking vote?

☑️ Pull your last 12 months of financials and read them like a buyer would: Not your accountant’s lens. A buyer’s lens. Where would they have questions? Where does the story get murky? If a deal is ever structured around performance, those are the numbers your payout could depend on.

☑️ Start tracking the metrics a buyer will ask about: Customer concentration, gross margin by product line, and cost to acquire a customer are good starting points. You can’t negotiate confidently around numbers you don’t know.

☑️ Decide where you sit on risk vs. price before a buyer asks: Write down how much you’d need at closing, and how much you’d be willing to have depend on the future. It’s a lot easier to negotiate when you’ve already decided.

That’s all for this week. Remember, selling your business isn’t a yes-or-no moment. How you get paid matters just as much as how much.

If your business is doing over $2M in annual revenue and you want to think through what a deal structure could look like for you, book a free strategy call with me here.

Talk next week,

Brian Dukes

Managing Partner at Exitwise