The Business Owner’s Transition Toolkit_Strategist Magazine_2025 by Morton Wealth

THE BUSINESS OWNER’S Transition Toolkit

FEATURING

18 top exit-planning professionals covering valuation, tax planning, deal structure, and the emotional journey of exiting a business

LETTER FROM THE CEO

PREPARING FOR THE SALE:

Valuation Boosters: 5 Ways to Enhance Your Business’s Market Value

The role of legal strategy in exit planning: Insights from Janice Miller

Avoiding Common Tax Traps When Selling Your Business

Maximizing Your Business Sale: John Murphy’s Hands-On Approach to Growth

FUTURE-PROOF YOUR BUSINESS: CRISTIAN ARRIETA’S ADVICE FOR INTEGRATING ESTATE AND EXIT STRATEGIES the art of exit strategy:

CRAFTING YOUR INCOME REPLACEMENT STRATEGY

EXECUTING THE TRANSACTION PROCESS:

BEHIND THE NUMBERS: HOW RANDY MILLER GUIDES BUSINESSES THROUGH TRANSITIONS AS A FRACTIONAL CFO

Unlocking Value with John Duhadway: How Audited Financials Elevate Buyer Confidence

LIFE AFTER THE SALE:

THE EMOTIONAL IMPACT OF TRANSITIONING YOUR BUSINESS

Learning a New Language: Understanding Rollover Equity, Earnouts, and Seller Notes Can Culture Make or Break Your Business sale?

Mastering Due Diligence: Brent Reinke’s Strategic Approach to Business Exits

Avoiding Deal Pitfalls with Michael Schuster

ESOPs made simple: Sheryl’s Step-By-Step Approach to Employee Ownership Preparing the Next Generation: Jeremy Lurey on Family Succession

LETTER FROM THE EDITOR

EVENTS

LETTER FROM THE CEO

Business owners pour their heart and soul into their companies— and Jeff Sarti, CEO of Morton Wealth, understands better than most the deep connection that entrepreneurs have with their businesses. For many, their business is more than a livelihood—it’s a legacy. “Owning a business is really like having another child in some ways. It’s not 9 to 5; it’s 24/7,” Jeff explains, speaking from personal experience. He knows the sacrifices and the relentless dedication that come with being a business owner, which often means personal finance and planning take a back seat.

Reflecting on his own journey, Jeff candidly shares, “I didn’t get my estate and trust docs done until well after my third child was born, which was very irresponsible in many ways.”

OWNING A BUSINESS IS REALLY LIKE HAVING ANOTHER CHILD IN SOME WAYS.

IT’S NOT 9 TO 5; IT’S 24/7.

His personal story echoes the reality for many entrepreneurs—being so focused on growing the business that essential planning, like succession and personal financial health, gets pushed aside. This realization became a cornerstone for Morton Wealth’s mission: to be more than just financial advisors, but true partners who understand the emotional and financial complexities of business ownership.

Succession planning is often the most daunting aspect of running a business, something Jeff refers to as “paralyzing” for many owners. “Businesses are their baby, and the thought of moving on and prepping successors can be overwhelming. But it’s this exact procrastination that’s the worst mistake a business owner can make,” Jeff warns. He stresses the importance of starting early, as executing a thoughtful succession plan can take months, even years; and this is where Morton Wealth steps in.

Morton Wealth’s approach is rooted in personal experience. “We’ve been through it ourselves having gone through succession planning and successful transitions over the years,” Jeff says. It’s this firsthand knowledge that fuels Morton’s passion for helping business owners navigate these critical decisions. “We come in as a strategic partner and confidant to help business owners not only with succession planning but with getting their personal finances in order, so they don’t create chaos in other areas of life.” Jeff is also keenly aware of the financial industry’s gap in serving business owners, particularly before a liquidity event. He notes that the traditional

assets-under-management (AUM) model doesn’t incentivize financial advisors to engage with business owners early enough. “The financial advisory industry has largely overlooked business owners because advisors often come in too late, after a liquidity event,” he says. This is where Morton Wealth aims to stand out. “We’re passionate about this because we’ve been in business owners’ shoes. We know how complex and overwhelming it can be, and we want to be there from the start to make sure they maximize the value of all their hard work.”

At the heart of Morton Wealth’s approach is resilience—both for the business and the owner. Jeff speaks often about the importance of making businesses more resilient, helping owners craft a strategic vision that ensures their legacy endures even after they’ve stepped away. “It’s about helping them not only find financial success but also fulfillment in the next chapter of their lives,” he explains.

Jeff’s message to business owners is simple but powerful: “You’ve put in blood, sweat, and tears to build your business. Now, let’s make sure all that effort pays off—not just financially, but in a way that allows you to enjoy life after the business.”

Morton Wealth’s mission is to guide owners through that process, ensuring their personal finances and business transitions are as well-prepared as the companies they’ve built. ■

WHAT IS THE STRATEGIST?

PARTNERING WITH BUSINESS OWNERS ON THEIR SALE OR TRANSITION

Building and running a business is hard. We’ve found that a lot of owners feel burnt out and uncertain about what the future holds for the business. This is why we created the Strategist offering. To help owners build more transferable value for their business so that they can maximize their potential ROI. Instead of feeling nervous about what will happen, our clients feel excited about their future and have a clear vision of what life looks like after the business.

5 WAYS TO ENHANCE YOUR BUSINESS’S MARKET VALUE

JORDI PUJOL AND KAREN MILES

When preparing to sell a business, owners are often focused on boosting the valuation at the last minute to maximize their return. However, strategic preparation in the years leading up to a sale can make an even more significant difference in the final deal. In this article, we’ve combined insights from industry professionals Karen Miles and Jordi Pujol to explore five key ways business owners can enhance their business’s market value.

1 DIVERSIFY YOUR REVENUE, AND MAKE IT RECURRING

Revenue growth is a key driver of business valuation, but simply increasing top-line revenue may not be enough. According to Karen Miles, “Revenue is important, but many business owners overlook the significance of profitability. Growing revenue without ensuring it is profitable can actually hurt your valuation.”

Jordi Pujol agrees, emphasizing the importance of focusing on sustainable growth: “The actions you take to increase revenue should align with long-term value creation. Buyers can see through short-term revenue boosts, so it’s important to focus on strategies that create lasting impact.”

While most owners understand the importance of profitability, there are actually other strategies that can give a business a valuation boost:

DIVERSIFICATION OF REVENUE STREAMS

Diversifying revenue streams can significantly reduce business risk and increase market appeal. Jordi noted, “Diversifying customer

bases and sales channels decreases concentration risk, which in turn lowers the discount rate applied to future cash flows, ultimately increasing the valuation.”

CUSTOMER RETENTION AND ACQUISITION

Both experts highlight the importance of customer retention in valuation. “Recurring revenue streams, especially those with longterm contracts, significantly increase visibility and reduce risk,” Jordi says. Karen adds, “Businesses that can demonstrate strong customer loyalty and acquisition strategies have a clear advantage when it comes to valuation.”

2 AIM FOR PROFIT MARGINS THAT MATCH INDUSTRY BENCHMARKS AND HIGHLIGHT OPERATIONAL EFFICIENCIES.

As most owners know, profit margins play a crucial role in valuation, often more so than sheer revenue growth. Karen shares, “We look at profitability metrics like EBITDA. Most industries trade on profitability, so focusing on improving your margins can have a bigger impact than increasing revenue alone.”

This is a key area of focus because most successor owners understand that growth is supported by the infrastructure of a business. The goal for buyers isn’t just to acquire a growing company, but rather a company that can sustain growth. To achieve this, Karen recommends owners focus on two areas:

OPERATIONAL EFFICIENCY AND COST MANAGEMENT

To optimize your business’s operational costs and efficiency, owners have to step outside the business and look at their operations objectively by asking questions like: If I were to start over, what processes would I keep? Which ones would I recreate?

Are all of my suppliers/vendors offering me the best pricing and value? Do I have a management team in place that influences the culture to work smarter and more efficiently? Is there technology I can integrate to reduce costs?

When owners step outside the business to answer these questions, they are generally able to strategize ways to boost valuations by running a more streamlined business.

BENCHMARKS FOR STRONG VALUATION

While each industry has its own benchmarks, Karen emphasizes the importance of aiming for industry-standard profit margins: “Hitting or exceeding industry benchmarks in gross and operating margins signals to buyers that the business is well-run and sustainable.”

It’s one thing for a business to hit margins that work for the owner—meaning, the business pays the owner in a way that supports their lifestyle. However, when the business is no longer only concerned about the owner’s distributions, and now concerned about marketing an attractive business for other owners, the target profit margin must change to match industry standards.

3 FINANCIAL STATEMENTS SHOULD BE CLEAN AND EASY TO UNDERSTAND

Clean financials are essential for showing buyers a business is well-run and thereby increases the likelihood of a successful sale, yet they are often overlooked by business owners. Karen advises, “Maintaining welldocumented financials is crucial. Red flags like inconsistent revenue recognition or unexplained expenses can raise concerns and decrease the business’s value.”

Jordi also mentions that business owners should start cleaning up their financials well in advance of a sale: “It’s important to address any inconsistencies early. Things like significant discrepancies between your books and tax filings, or unresolved legal matters can significantly lower the valuation if not dealt with.”

Oftentimes, owners have used the same bookkeeper for years without considering a second review or change. Well in advance of the sale, it is worthwhile to hire someone who can provide a second option and offer suggestions to clean up the financials before prospective buyers come knocking.

BUSINESSES THAT PIVOT AND ADAPT TO MARKET CHANGES NOT ONLY SURVIVE BUT THRIVE, SIGNIFICANTLY ENHANCING THEIR VALUE.

4

DIVERSIFY SUPPLIER AND CUSTOMER BASES

Having a concentrated base of customers is one risk owners don’t always pay attention to when they are considering a sale. Karen stresses, “Losing key customers or having high customer concentration are red flags. Buyers are wary of businesses that rely too heavily on a single revenue source.”

In a similar way, having one supplier that a business relies heavily on can be a red flag as well. Jordi added, “Diversifying your supplier base can have a similar impact as diversifying your sales channels or customer ‘types.’ The more concentrated risk is, the more a buyer will penalize your future cash flows.”

Jordi shares the importance of client experience, noting a convenience store chain that focused on small details, such as store cleanliness and customer promotions: “By improving the customer experience, they were able to increase revenue by not only attracting new customers, but also increasing existing customer average spend.”

While many owners feel confident their customers will remain loyal during a transition, buyers likely won’t want to take that risk. If a business can show that it is capable of replacing revenue for lost clients, gaining a diversified customer base, and/or able to shift suppliers around as needed, they will increase the confidence levels of potential buyers.

5 YOUR TEAM WILL DRIVE YOUR VALUATION

A strong management team is one of the most significant drivers of business value. Karen explains, “Buyers want to know that the business can operate smoothly without the current owner. Having clear processes and a competent management team in place increases buyer confidence.”

In addition to having a team that can maintain operations during a transition, buyers also look at a strong management team as a sign of a company that makes good decisions. As an owner, it is easy to allow the business to become overly dependent on you and not make the investments into management that would allow it to scale.

BUYERS VALUE SUSTAINABLE, LONG-TERM GROWTH OVER SHORTTERM REVENUE SPIKES THAT DON’T CREATE LASTING IMPACT.

Jordi adds, “One of the things that buyers look for is how reliant the business is on the owner. The more a business can run independently, the higher the valuation will be.”

While it may feel like an impossible task to make the business less dependent on the owner, it is vital for the success of the sale.

Bonus Tip: SHOWCASE YOUR ABILITY TO EASILY ADAPT TO THE MARKET

Both experts have stories of businesses that successfully enhanced their valuation before selling. Karen recounts, “One of our clients in the disposable paper products industry made a smart pivot post the COVID pandemic, diversifying from primarily antibacterial products to include baby related products. Their ability to adapt and diversify product offerings led to a substantial increase in value.”

Jordi adds, “Prove that you are scaling, not just growing. Actions that increase revenue and enhance margin have a multiplier effect on value.”

Bottom line: buyers are going to look at more than just the numbers. They want to see a business that is well-run and scalable.

KAREN MILES

MANAGING DIRECTOR

HURON CONSULTING GROUP

CONCLUSION

Enhancing a business’s market value requires thoughtful, strategic planning well before the sale. By focusing on profitability, cleaning up financials, reducing risks, and building a strong management team, business owners can significantly boost their valuation. As Karen Miles says, “It’s about setting your business up for long-term success, not just shortterm gain.” And, as Jordi Pujol emphasizes, “Aligning the goals of your business with the typical ’wants’ of a potential buyer will not only increase valuation but also allow you to run a smoother operation.” ■

JORDI PUJOL, CFA® MANAGING DIRECTOR

OBJECTIVE, INVESTMENT BANKING

DISCLOSURE: Information presented herein is for discussion and illustrative purposes only and should not be treated as tax, legal or financial advice. The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and do not provide a guarantee of future success or similar services. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

How does your experience in investment banking and strategic advising shape your role in the exit planning process, and how do you collaborate with other professionals to maximize a company’s performance and market value?

MAXIMIZING YOUR BUSINESS SALE:

JOHN MURPHY’S HANDS-ON APPROACH TO GROWTH

My background as an investment banker and strategic advisor enables me to enhance company performance and market value during the exit planning process. I’ve learned to approach businesses with a buyer’s mindset rather than an owner’s perspective. This allows me to identify opportunities and challenges from a fresh, objective angle because I am not in their forest.

I’m often brought in by other service professionals—accountants, wealth managers, lawyers, investment bankers, commercial bankers—when businesses face operational or financial hurdles that are slowing their growth. I work closely with these advisors to ensure the business’s strategy aligns with the owners’ financial and strategic goals. Whether it’s restructuring management, refining pricing strategies, or evolving the business model, I focus on preparing companies for a successful transition or sale.

Business owners often approach me when they reach a point where they are stuck and / or the growth plan in their head isn’t working in the real world. I identify and create solutions for the issues that hold them back. We will improve their performance and market value faster and with greater confidence than they can on their own.

A CLEAR STRATEGIC VISION IS ESSENTIAL FOR ANY SUCCESSFUL EXIT, AND MY ROLE IS TO HELP BUSINESS OWNERS REFINE AND IMPLEMENT THAT VISION.

How do you work with an owner to increase enterprise value?

Increasing enterprise value is a handson process, and I immerse myself fully in the business to ensure success. I analyze the numbers in detail, meet 1:1 with management team members, and attend management meetings to understand the company’s rhythm and unique dynamics. This holistic approach allows me to identify areas for improvement, from adjustments to the business model and pricing to changes in management structure or decision-making.

It’s not just about the numbers—it’s about understanding the qualitative aspects of a business as well. Combining both qualitative and quantitative insights provides a deeper perspective and helps create a tailored action plan to boost performance and enterprise value.

I worked with an e-commerce company that had steady growth and profits but was eroding its margins and value by offering large discounts to other online retailers. We recommended they eliminate this wholesale revenue, the “worst” revenue in the company, and shrink. Their short-term revenue was reduced but intermediate and long-term profitability significantly increased. Within two years, the business saw its value increase by 2.5x, demonstrating the power of informed, strategic decision-making.

How do you help an owner create a strategic vision for their company?

A clear strategic vision is essential for any successful exit, and my role is to help business owners refine and implement that vision. I start by reviewing organizational charts, financials, and any existing strategic plans. From there, we identify the specific

key areas of focus that will strengthen the company and position it for growth and resilience.

Sometimes we create a “change committee” within the company responsible for driving the strategic plan forward and ensuring accountability across the organization. Regular check-ins with the committee help maintain momentum and ensure alignment with long-term goals.

For business owners, the goal isn’t just to set aspirational goals but to make the company more adaptable and less reliant on specific markets, products, customers or employees. This level of preparation enhances the company’s value whether they decide to sell or not. ■

PROFESSIONAL BIO:

JOHN MURPHY PRESIDENT

JK MURPHY ADVISORS

John K. Murphy, affectionately known as Murph, has spent his career working with private business owners to successfully achieve their growth stories acting in a consulting and advisory board-type role. After 20 years as an investment banker, Murph started JKMA in 2004 and put his “We think like a buyer, not an owner” philosophy to work. Murph’s straightforward, yet patient hands-on approach provides clients with the trustworthy partner they need to meet their strategic, growth, liquidity, succession, Market Value, risk tolerance and shareholder transition objectives.

Murph has also been an active angel investor for the last 15 years, giving him broader insights to apply with his consulting clients.

Whether it’s at the poker table or navigating turbulent waters, Murph’s poker face gives nothing away. He is a dedicated Green Bay Packers and Wisconsin Baaaadgerrss fan who graduated from the University of Wisconsin with a BA in Finance and Marketing, and holds an MBA in Finance from the University of Chicago.

The art of exit strategy:

HOW CHUCK AND BRIAN MOHLER MASTER BUSINESS WORTH FOR SEAMLESS TRANSITIONS

How do you and the team at Eagle Corporate Advisors integrate your expertise in value acceleration with your collaborative approach to help business owners prepare for a successful and sustainable exit?

At Eagle Corporate Advisors, we bring a passion for helping business owners achieve their dreams, focusing on value enhancement as the cornerstone of our approach. We play a crucial role in preparing business owners for their exits by assessing the current value of the business and working diligently to enhance that value, ensuring a smooth and successful transition. On the personal side, we make sure business owners have clear plans for life after the exit, both emotionally and financially. This often involves bringing in a financial advisor to ensure the owners have sufficient funds, net of taxes and debt, to sustain their post-exit lifestyles. What sets us apart is our emphasis on value acceleration. We focus on preparing the business to be worth more, growing its value, and making sure it’s transferable. This approach ensures the business is not only more valuable but also ready for transition.

Additionally, our goal is to help business owners transform and streamline all areas of their businesses—from mission and vision to market and operational drivers—thereby growing transferable value.

Collaboration is a cornerstone of our practice. We collaborate closely with other advisors, taking the time to get to know them and understand how to work together effectively. Whether through creating white papers, hosting events, or sharing data and progress checks, we ensure everyone stays aligned throughout the engagement process. Trust is key in this collaboration, given the deeply personal nature of a business to its owner. We’ve built strong relationships with a network of expert professionals, including attorneys, bankers, CPAs, financial advisors, insurance consultants, IT specialists, and marketing gurus. This extensive collaboration network allows us to help businesses grow effectively.

When do you find it most beneficial to start working with business owners, and how does your approach adapt if you’re brought in later in the process?

We aim to get involved with business owners

as early as possible, ideally from the very start of their business journey. We operate on the principle of “begin with the end in mind,” which allows us to provide support from day one. However, we’re flexible and can step in at any point in the business cycle, adapting our approach to the specific needs of the business.

The “sweet spot” for our involvement is typically three to five years before the planned exit or transition. This timeframe allows us to effectively implement our value acceleration process and maximize the business’s growth. Whether we are the ones building the relationship and bringing in other professionals or being brought in by others, our focus remains on preparing the business for a successful future.

How do you help business owners navigate the challenges they face during the exit planning process?

One of the most common challenges business owners face is losing sight of why they started their business and failing to plan for the future. Many owners are stuck working in the business instead of working on the business and lack a clear direction

for the next three to five years. This often leads to misalignment within the team, with everyone heading in different directions.

We help by getting everyone on the same page and tackling the business’s weaknesses—whether those are in operations, finance, sales, or marketing. We help owners understand the various gaps in their business, such as the profit gap, value gap, and wealth gap. By identifying these gaps, owners can make informed decisions about whether they are ready to exit or need to focus on growing the value of their company first. We guide business owners in strategizing and implementing improved processes across all fundamental areas of the enterprise.

How do you prepare an owner for the responsibilities they will face once their business has been sold and it must be integrated into the acquiring company?

We help business owners come to terms with the reality that once their business is sold, they will no longer have control over it. Their “baby” is now leaving them, and the new owner will have full rights to make changes, even if those changes don’t align with the former owner’s vision.

We stress the importance of having a postsale game plan, preparing owners for the possibility that, even if they stay on for a few years, they are now employees rather

than the boss. This shift in dynamics can be significant, and we help owners mentally and emotionally prepare for this change.

We also track how much time the owner spends away from the business before the sale. The more time they spend on activities outside of work, the easier it is for them to transition and view the business as just another source of income rather than an identity. The more they fill their lives with activities and a lifestyle away from the business, the easier it becomes to see the business as simply another cash flow in their income stream.

What are best practices you see related to integration?

When involved pre-transaction, we use the value acceleration methodology to optimize the business by focusing on eight key areas: planning, leadership, sales, marketing, operations, people, finance, and legal. By improving these areas, we grow the business’s value, making it easier to run and more profitable. This optimization also makes post-transaction integration smoother, as the business is already functioning efficiently.

If we’re involved on the buy-side after the transaction, we conduct an assessment to understand the business and identify which levers can be pulled to optimize it for the new owner. We caution against making

changes too quickly, as this can alienate employees who are not yet familiar with the new leadership. It’s often better to let the business run as it is for six months to a year, building trust, respect, and confidence within the team before making gradual changes.

We also emphasize the importance of understanding and aligning company cultures during integration. Even businesses in the same industry can have vastly different cultures. Without alignment in values and direction, integration can fail. Strategic planning and communication are essential to ensuring that both teams work together smoothly during the integration process. ■

PROFESSIONAL BIO:

CHUCK

MOHLER, CPA, CGMA, CEPA®, CVGA, CM&AA, CVA FOUNDER AND PRESIDENT

EAGLE CORPORATE ADVISORS

Known for helping people achieve their dreams, Chuck has more than 30 years of experience in business operations, consulting businesses, real estate lending, trust management, and trust deed investments. Chuck draws on his vast experience and broad knowledge base to assist business professionals who realize the value of a highly experienced outside expert. Chuck brings a unique dedication to the success of others.

BRIAN MOHLER, CPA, CMA, CVGA, CSCA

ADVISOR

EAGLE CORPORATE ADVISORS

Brian is passionate about serving middle market businesses and strives to support their ambitions with new insights. Applying his education and experience, Brian implements innovative processes yielding excellent outcomes. Prior to joining Eagle Corporate Advisors, Brian developed his talents serving companies of all sizes, including small main street shops to large publicly traded corporations, gaining an appreciation for longterm relationships and for pursuing the goals of his clients.

DISCLOSURE: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and do not provide a guarantee of future success or similar services.

THE ROLE OF LEGAL STRATEGY IN EXIT PLANNING:

INSIGHTS FROM JANICE MILLER

How does your experience as a legal advisor and managing partner at Miller Haga Law Group, LLP shape your role in the exit planning process, and how do you leverage your expertise to collaborate with other advisors to ensure client success?

As the managing partner of Miller Haga Law Group, LLP, I play a pivotal role in the exit planning process, often acting as the quarterback. My background includes over 25 years as a legal advisor, with experience serving as Vice President of Business & Legal Affairs at NBCUniversal’s Universal Studios Hollywood & CityWalk, where I handled significant real estate and legal matters. I ensure that the client’s expectations are

met both financially and legally. Whether I’m leading the process or supporting financial advisors in the quarterback role, my focus is always on the client’s success.

My experience in corporate governance, intellectual property, and complex business transactions allows me to collaborate effectively with other advisors, ensuring a holistic and seamless approach.

At what stage in the exit planning process do you find your involvement most effective, and how does your expertise influence the journey when you’re brought in early versus later?

Ideally, I like to be involved at the very beginning of the exit planning process. This early involvement allows me to guide the

deal with precision and foresight, drawing on my extensive experience managing multimillion-dollar business deals. However, I’m often brought in after the letter of intent (LOI) has already been issued. While I can still add value at that stage, it’s much easier to prevent issues from arising when I’m part of the process from the outset. Without early involvement, it’s common to see missteps that could have been avoided.

How do you help business owners navigate the challenges they face during the exit planning process?

My role depends on what the client needs. Sometimes, I find myself acting as a therapist because many business owners aren’t emotionally ready to transition out.

Exit planning is about more than just financial and legal considerations; it’s also a deeply emotional process. I meet clients where they are and provide the support they need, whether that’s straightforward legal advice or a more empathetic approach to help them work through their concerns. My background in business affairs and dispute resolution equips me to address both the practical and emotional challenges of the process.

What are the real-world consequences of not involving professional advisors early on?

When business owners try to handle the process themselves, it often leads to worse outcomes. Many try to save money by cutting corners, but this approach

frequently results in costly complications. I’ve seen clients attempt to use services like LegalZoom, only to end up needing more extensive professional assistance later. These challenges could usually be avoided by involving professional advisors early in the process, ensuring a solid foundation from the start.

What is the value of a coordinated advisory team for a successful business sale?

A coordinated team of advisors is essential for a successful business sale. Complex transactions require input from multiple disciplines, and while everyone has good intentions, a well-organized team ensures the best outcome for the client. This is the foundation of my concept of Coopertition® ,

PROFESSIONAL BIO:

a book I authored which promotes cooperation between competitors for the client’s benefit. I often liken the process to a football game—every player, whether it’s the quarterback, kicker, wide receiver, or linebacker, has an essential role in helping the client reach the end zone and achieve a win. ■

JANICE L. MILLER, ESQ MANAGING PARTNER

MILLER HAGA LAW GROUP, LLP

Janice L. Miller, Esq. is the managing partner of Miller Haga and is a highly-recognized legal advisor with over 25 years of experience as an innovative general counsel. She represents the firm’s clients in business transactions, real estate leasing, entertainment, intellectual property, licensing, and hospitality. The firm’s clients have come to rely on Janice’s insightful dispute resolution strategies as a preventive measure to avoid litigation. She is a noted speaker and panelist at conferences relating to location-based entertainment venues, real estate and leasing, corporate governance, intellectual property and licensing, and emerging areas of the law.

DISCLOSURE: The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and do not provide a guarantee of future success or similar services.

CRAFTING YOUR INCOME REPLACEMENT STRATEGY

BY JOE SEETOO

In the 2023 Los Angeles State of Owner Readiness Report, over 75% of the respondents stated they need income from the business to support their lifestyle. Many owners feel like they are stuck on the proverbial hamster wheel where they are slaves to working in the business to pay their bills.

The mission of Morton Wealth’s Strategist offering is to create better outcomes for business owners. We believe by crafting a thoughtful income replacement strategy that ties into their exit plan, owners can execute their plan with much greater confidence.

Before we talk about income, let’s focus on retirement. There can be a lot of anxiety and fear around retirement, and a lot of people struggle with this decision. It often feels like you have control while you are working, but there is a sense of a lack of it once you leave the workforce. How do we help clients with these decisions?

1

Mindset: As an owner, you are a doer, and you make it happen. For years, you have worked hard to build value, so naturally, it can be challenging to shift to a “spending strategy” because you have been conditioned to accumulate and to focus on others first. As owners transition to the next phase of their lives, Morton advisors act as coaches to help them with this transition.

2

Financial Plan: When you have a financial roadmap, you have more visibility around your financial future. This in turn will give you confidence in determining what you can directly control such as delaying Social Security (or not), managing expenses and how much passive income you need to generate from your portfolio to live the life you imagined.

3

All or Nothing? Full-time owner or enter into retirement: It doesn’t have to be one or the other. You may decide that staying on as an employee or consulting are appealing options both from an emotional/intellectual standpoint as well as financially. As we explain below, owners have some additional levers they can use as part of their transition into retirement. We can help you understand the impacts these decisions have on your financial future

TRADITIONAL INCOME OPTIONS

Bonds and CDs have historically been the portion of a portfolio that generates both current income and acts as a reserve of “safe capital” for investors. We believe bonds are a tool in the toolkit that can be used in a properly diversified portfolio assuming the expected return compensates you for the risk you are taking. But, interest rates have fluctuated significantly over the last several decades which can pose challenges for investors who rely only on bonds or CDs as their only source of income. More recently, in the wake of the great financial crisis, the Federal Reserve cut rates to zero for many years, ultimately to the detriment of savers (CD investors) and lenders (bond investors).

Certificates of Deposit: Many investors are lured by the marginally better yields banks offer through their CDs along with the

$250,000 of FDIC insurance. Despite these benefits, there are problems to consider. Specifically, one of the main challenges we see is that CDs require a lock-up period (typically 12 months) unless you are willing to pay an early withdrawal penalty which can wipe out the yield or even eat into the principal. If these monies are supposed to be “safe funds,” doesn’t it make sense to have these dollars accessible immediately? Additionally, CDs are exposed to reinvestment risk which means when the CD matures, there is no guarantee you can reinvest at the same interest rate. Lastly, CDs typically provide a return that is marginally better than the current inflation rate. If inflation spikes after you purchase your CD, your principal value will decline in “real terms”.

Traditional Bonds: Using the 5-year Treasury “real yield” as a proxy for the inflationadjusted income bond holders would have received, you can see it has generally hovered between 0-2% annually in the last 20 years. In other words, these bonds have barely kept pace with inflation. Additionally, the real yield was negative for much of 20112016 and from 2020-2022, meaning your real income declined relative to inflation (to make matters worse, we believe that actual inflation has been understated by the Federal Government). For many owners looking for safe sources of income to replace what they are drawing from the business, it’s clear bonds alone might not get the job done.

Lastly, many investors who were seeking higher yields over what a 5-year Treasury could offer might have invested in longer-

dated instruments. However, when interest rates started to move up in 2022, they experienced significant declines in the principal value of their bonds. In fact the broadbased fixed income benchmark (Bloomberg Aggregate Fond Index) was down 13% in 2022. So much for a “safe” income strategy!

GOING BEYOND TRADITIONAL INVESTMENTS

The challenge for investors who rely solely on bonds as the source of income is that they have a one-dimensional income replacement strategy, meaning that it’s solely dependent on the interest rate policy set by the Federal Reserve. This is not a prudent way to build a dependable cash flow strategy. We prefer multiple streams of income that fill the bucket from which you draw your income. At Morton Wealth, our investment philosophy has three core tenets of 1) Risk Management, 2) True Diversification and 3) Cash flow. We will illustrate with 3 different asset classes below.

REAL ESTATE EQUITY

Investing in real estate offers investors several distinct advantages relative to other asset classes. First, it’s a hybrid investment that has components of both income and growth.

Most investments are geared towards either income (bonds) or growth (stocks). Real estate has a unique combination of both. From an income perspective, the cash flow from real estate can be compelling assuming the property is purchased at an attractive value, financing is available at a rate lower than the income it generates, and expenses are manageable. Additionally, the ability to increase rents above the inflation rate over the long run can further increase income. From a growth perspective, investors can benefit from the appreciating value of real estate over time through a buy-and-hold strategy and/or by acquiring properties that need some TLC and improving the value of these through capital improvements.

Second, depreciation (in the tax code as a non-cash expense) can be used to shelter much of the rental income, especially in the early years of owning a property. This taxadvantaged aspect of real estate is unique when compared to other asset classes.

Lastly, in line with our risk management philosophy of true diversification, real estate tends to be driven by specific factors in the local economy such as population trends, job and industry trends, etc. resulting in diversification both within real estate in other markets and other asset classes at large.

There are a myriad of risks investing in real estate. Drawbacks include 1) a long-term commitment as real estate is a very illiquid investment 2) potential loss of principal, and 3) execution risk of the fund manager. These risks need to be thoughtfully evaluated as part of an investment portfolio.

REAL ESTATE LOANS

First trust deeds, also known as private real estate loans, are often considered “bridge” loans because they help bridge the gap between the purchase or renovation of a property and the time when the borrower can ultimately get a permanent bank loan. In today’s environment, most banks may be unwilling to make a loan on a property if it is being renovated and does not yet generate sufficient income. In this instance, the property owner could get a bridge loan for a year while he or she finishes the renovations and leases the property. The owner can then go to a bank to get a loan on the stabilized property.

It is very common for property owners or real estate investment professionals to use bridge loans instead of bank loans because of how quickly private lenders can provide the capital and close on deals. While a bank may take 3–6 months or more to approve a loan, a private lender may assess a property and fund a loan in only a few weeks. In fact, many private loans are high-quality mortgages that banks would be happy to do, but borrowers elect to pay a higher interest rate with private lenders to make sure they can close quickly on a transaction.

Are private loans riskier than bank loans?

While it depends on the specific set of facts and circumstances, private loans can often be more conservative than bank loans in

two key ways: First, private lenders will often lend less on a property than a bank will. For example, a bank may be willing to lend 80% of the value of a property, while a private lender may only be willing to make a loan at 60–65% of the value. This lower loan amount relative to the value of the property (known as loan to value, or “LTV”) leaves a substantial cushion that protects private lenders’ principals from even meaningful declines in the value of their real estate collateral. Second, private loans are often more short-term in nature, with 1to 3-year terms. This shorter-term lending period allows less time for economic or property-specific risks to develop following a lender’s initial assessment of a loan. The yields on the private loans are typically in the high single digit or low double-digit range (811%) which is attractive when compared to the public markets. Distributions to investors are typically monthly or quarterly depending upon the manager and structure of the fund.

PRIVATE DIVERSIFIED LENDING

Generally speaking, these loans have specific tangible assets backing them. While most traditional bank loans are made based on a company’s cash flows, we feel that this arrangement is not sufficient since a company’s cash flows can deteriorate quickly due to a recession, a poorly managed business plan, or some other unforeseen event. On the other hand, asset-based loans

rely on the value of the assets that a company owns that have been independently verified or appraised by the fund manager. These assets provide a meaningful backstop in the event that a company’s operations deteriorate. Examples may include inventory, equipment, accounts receivables, and real estate.

In most cases, these loans are floating rate in nature and have maturities of 2-3 years. The current cash flow/yields are often 4-5% above the current treasury rates. Distributions to investors are typically monthly or quarterly depending upon the manager and structure of the fund. The one caveat in these examples is that these investments typically require a level of illiquidity ranging from 1- 10 years depending upon the specific asset class and investment opportunity.

UNIQUE LEVERS

Additional options that business owners can consider as part of their income replacement strategy relate to how they structure their deal as they exit. Specific examples include 1) separating ownership from management, 2) an earnout 3) consulting or ongoing employee and 4) seller notes. We briefly describe each below.

Option 1: One step to a thoughtful exit strategy might involve either elevating an existing employee or hiring an outside executive to step into the shoes of the owner to take over the day-to-day management responsibilities. Many entrepreneurs conflate

ownership and management to be one and the same. Naturally, they started the business as well as grew it and operated it. However, separating ownership from management is often a key first step to navigating a succession plan and income replacement strategy. By maintaining ownership, the owner is still entitled to the dividends or profits from the business but has shifted operations and execution of the business strategy to an executive who is now accountable to the owner.

Option 2: In a situation where the owner is selling to a 3rd party, one of the more common tools is the use of an earnout which can be used as a “win-win” incentive to both the buyer and seller. Imagine a very simplistic scenario where an owner sells his ownership interest for $10 million, and the consideration is all cash at closing. An alternative scenario might be $9 million at closing and up to an additional $3 million over the next 2 years assuming the seller is able to achieve certain growth metrics. If the seller is able to execute on the growth targets, they earn an additional $2 million above the first scenario.

Option 3: Oftentimes, for many owners, it’s unlikely they will want to go from working 50-60 hours (or more per week) to full retirement immediately. For many, the idea of consulting, coaching or part-time work is a great way to stay engaged in the community, have a sense of purpose and still generate an income stream from work. It can be a bridge or transitional step that provides the perfect balance of freedom to pursue the

day-to-day hobbies you imagine as part of retirement along with your desire to still be relevant in the workforce.

Option 4: A seller note is a flexible financing tool that bridges the gap between the owner/seller and the new buyer. Rather than receiving only cash as consideration for the purchase, the seller receives a promise of future deferred payments from the acquirer with the agreement which is memorialized by a promissory note. The note should carry an interest rate that makes sense for the deal and compensates the owner for the credit risk you are assuming from the new buyer. Typically, these notes are relatively short-term in nature and subordinated to the bank debt as part of the deal. While there are risks with seller notes, they should not be overlooked as part of an income replacement strategy for owners.

By thoughtfully considering these four unique levers, you can reduce the level of passive income required to be produced by the investment portfolio and increase the longevity of the principal both to the benefit of the owner and their future beneficiaries.

CONCLUSION

Most owners intuitively understand they will need to replace the income they draw from their business if they are planning to exit at some point. However, the challenges most business owners face is 1) they may have a mental block with the idea of “retirement” and how to transition from a “doer” mindset with the goal of building and accumulation to one of enjoying what they have built 2) they may struggle with how to develop a thorough financial planning framework that is comprehensive in nature and looks at their financial picture both for their needs today and many years into the future, 3) they might not be familiar with the unique levers available to owners in their deal structure such as earnouts, seller notes, rollover equity or separating management from ownership and what role these tools can play as part of the income replacement strategy. Finally, many owners aren’t sure how to source and build a diversified portfolio of dedicated cash-flowing investments (beyond CDs and traditional bonds) such as real estate ownership, real estate debt, and other assetbacked loans that can ensure consistent and resilient income not tethered solely to interest rate policy.

By partnering with a Morton Strategist advisor, we can help you overcome these challenges and develop a tailor-made income replacement strategy as part of your exit plan so that you can fully harvest the years of hard work you have poured into your business.■

DISCLOSURE: Information presented herein is for discussion and illustrative purposes only and should not be taken as a recommendation, offer or solicitation to buy or sell any security or asset class. The views and opinions expressed are as of the date herein and are subject to change. These views are not intended as an investment recommendation, and should not be relied on as financial, tax or legal advice. Morton Wealth makes no representation that the strategies described are suitable or appropriate for any person. The private investment opportunities discussed may only be available to eligible clients and can only be made after the client’ s careful review and completion of the applicable Offering Documents. Morton Wealth is an SEC registered investment adviser; however, such registration does not imply any level of skill or knowledge. There is risk of loss investing in securities, including the loss of principal amount invested. Past performance is no guarantee of future results. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

Future-proof your business: CRISTIAN ARRIETA’S ADVICE FOR INTEGRATING ESTATE AND EXIT STRATEGIES

How do you see your role in the exit planning process, and how do you ensure seamless collaboration with other advisors to support business owners effectively?

In the exit planning process, my role is both early and central. I often first connect with business owners through estate planning, which allows me to introduce the concept of exit planning and plant the seeds of knowledge about long-term strategies for leaving the business. I act as a coordinator or quarterback, bringing together professionals like tax strategists, financial planners, and attorneys to ensure every aspect of the exit plan is covered. This collaborative, teambased approach is essential for minimizing risks and maximizing the value of the exit.

When do you typically begin working with business owners on their exit planning journey, and how do you help them make pivotal shifts to prepare for a successful transition?

I typically get involved early, often through estate planning consultations. I recently worked with a business owner to help him shift his focus from working in the business to working on the business. That shift is critical for preparing a business for sale or succession. It’s a collaborative effort—

working with a business coach and an HR consultant, we institutionalized processes, improved company culture, and transitioned to sustainable, recurring revenue streams.

Helping him make that shift increased the business’s value and set it up for future transitions.

What are common pitfalls when an owner doesn’t align their exit plan with their estate plan?

One of the most common pitfalls is failing to align the exit plan with the estate plan. This often leaves the outcome to chance, which can negatively impact both the business’s value and the owner’s retirement plans. Planning ahead and integrating the exit strategy with estate planning goals is critical. Every professional working with the business owner—whether a tax advisor, wealth advisor, or attorney—should be addressing exit planning. I use an estate planning questionnaire with my clients to encourage them to think about long-term plans and take a proactive approach rather than a reactive one.

With the pending sunset provision at the end of 2025, what advice are you giving business owners to proactively plan for the changes in the tax law?

I advise business owners to stay informed about tax trends and meet regularly with their wealth and tax advisors to plan for potential changes. Tax legislation is always subject to change, so it’s important to remain flexible. While I think it’s likely that the sunset provision will be extended because allowing it to expire would be politically unpopular, we still need to plan for the possibility of the tax landscape reverting to pre-2017 levels. The key is to be prepared and maintain a strategy that can adapt to whatever changes come.

With the recent court finding on life insurance and buy/sell agreements, what estate planning advice are you giving to your business owner clients?

The recent rulings around life insurance and buy/sell agreements highlight the importance of using cross-purchase buy/sell agreements. In the typical structure, where the business owns the life insurance policies, the proceeds could be treated as taxable income. A cross-purchase agreement avoids this by having each owner hold life insurance policies on the others, eliminating that tax risk. This approach is particularly effective for smaller businesses with two to five owners and significantly reduces the tax concern, making it an essential part of estate planning for business owners. ■

DISCLOSURE: Information presented herein is for discussion and illustrative purposes only and should not be treated as tax, legal or financial advice. The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and does not provide a guarantee of future success or similar services. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

PROFESSIONAL BIO:

CRISTIAN R. ARRIETA, J.D. MANAGING PARTNER

LOWTHORP RICHARDS, LLP

Cristian R. Arrieta is managing partner with Lowthorp, Richards, McMillan, Miller & Templeman, APC., an Oxnard-based law firm that has served the central coast for more than 100 years. Arrieta’s practice focuses on comprehensive estate planning and probate, as well as business representation and property law. His estate planning expertise spans both transactional and litigation services, including wills and trusts, domestic asset protection, guardianships and conservatorships, elder law, inheritance disputes, and business succession planning.

An exceptional communicator, Arrieta is sought after for both his legal savvy and his commitment to keeping clients fully informed at each stage of a case or project. In business law he works with companies large and small, helping them with contracts, business disputes, intellectual property, succession planning, and commercial transactions. He also serves as general outside legal counsel to many of his business clients.

A cum laude graduate of CSU Northridge with a bachelor’s degree in philosophy, Arrieta received his Juris Doctor degree, also with cum laude, from the California Western School of Law and was admitted to the State Bar of California in 2005. He began his practice the same year.

In his spare time, Arrieta volunteers as a counselor for Women’s Economic Ventures, and at Senior Concerns, an adult daycare in Thousand Oaks. He is a graduate of the Ventura County Leadership Academy.

TAX LEGISLATION IS ALWAYS SO IT’S IMPORTANT TO

ALWAYS SUBJECT TO CHANGE, TO REMAIN FLEXIBLE.

AVOIDING COMMON TAX TRAPS WHEN SELLING A BUSINESS

BY HARRIET OBERMAN

Imagine this scenario: You’ve spent 40 years building a business. After achieving the success you’ve worked so hard for, you decide it’s time to transition and pass the reigns to someone else. You hire an attorney and an investment banker to market the business, and they quickly line up potential buyers. You sell for the valuation they provided, excited to finally receive the fruits of your labor. Then, nine months later, you give a third of that amount to the IRS. Cue depressing music.

Unfortunately, this is a story we hear far too often. Too much of a business owner’s sale gets allocated to taxes. This is why we partnered with Harriet Oberman, CPA and Partner with SingerLewak, to share key strategies and expert insightsthat will help ensurethat potential tax traps are addressed long before the sale is finalized, optimizing the after-tax proceeds for owners.

STRUCTURING THE SALE FOR OPTIMAL TAX OUTCOMES

Many business owners are unaware of the range of tax liabilities they may face when selling their businesses. According to Harriet, “the most common tax liabilities that owners overlook are related to the structure of the sale. For instance, if the business sale results in a capital gain, owners may be subject to additional taxes, such as the net investment income tax or supplemental Medicare taxes.” This can have a significant impact on the

overall tax bill, especially for business owners in high-tax states like California.

As an example, the choice between an asset sale and a stock sale can drastically alter a business owner’s tax obligations. Harriet explains, “In an asset sale, portions of the proceeds may be taxed at ordinary income rates—often the highest tax rate—while other portions could benefit from capital gains treatment. Conversely, in a stock sale, the entire proceeds are typically taxed at capital gains rates, which are more favorable [for the seller].”

Business owners may also consider spreading out tax liabilities over several years by using installment sales. Harriet notes, “An installment sale allows business owners to receive payments over time, potentially reducing the immediate tax burden by spreading the gain over multiple tax years.”

Harriet shared an example of a business owner who was able to significantly reduce their tax liability through strategic pre-sale planning. “I worked with a client who was

initially facing a large tax bill from the sale of their manufacturing business. By using an installment sale structure, they spread the payments over five years, which reduced their immediate tax burden and allowed them to stay in a lower tax bracket during the payment period.”

The key takeaway here is the importance of considering the different options and running projections to ensure you are structuring the sale to put the maximum amount of cash back in your pocket. We’ve worked with clients who have benefited from an installment sale and others who have not, because their investment income increased and therefore, they remained in the highest tax bracket. Understanding how sale structure impacts the bottom line is a key factor in determining the best structure for you.

USING RETIREMENT AND CHARITABLE STRATEGIES TO MAXIMIZE YOUR RETURN

Harriet highlights several effective strategies for reducing tax exposure, such as making use of retirement accounts and charitable contributions. “Business owners can offset some of their gains by contributing to retirement plans or making charitable donations in the same year as the sale. These moves can significantly reduce taxable income.”

Many clients shy away from charitable strategies, wanting to ensure that their

families are the main beneficiaries of the proceeds. However, there are great options to consider that could be a “win-win” for both families and charities. For example, a CRT (Charitable Remainer Trust) will pay income to the business owner, while providing a lump sum to a charitable organization at the end of their life. Alternatively, owners can lump 5-10 years of charitable giving into a single contribution in a DAF (Donor Advised Fund), which can be invested for growth and future donations can be sent out of that account instead of personal monies.

In many instances, charitable donations can reduce income between 20-50% (depending on the type of donation), which in turn reduces an owner’s tax bill significantly. We like to suggest owners think of this as moving money from the IRS to a charity they want to support.

CONSIDERING STATE TAXES WHEN DEVELOPING A STRATEGY

In addition to federal taxes, Harriet emphasizes the importance of understanding state taxes.

“Depending on where the business owner resides, state taxes can vary widely, and failing to account for this can lead to a much higher tax liability than expected.”

One valuable strategy is relocating to a lowtax jurisdiction before the sale. “If you’re in a high-tax state like California, you could move your residency to a lower-tax state well in advance of the sale,” she advises. However, this move must be carefully

planned, ensuring it’s done long before any sale agreements are in place.

As business owners increasingly explore relocating their business to a different state before a sale to reduce tax burdens, here are four key recommendations to help determine if this strategy is the right fit for your business:

1TIMING OF THE MOVE

One of the most critical factors is ensuring that the move happens well in advance of the sale. States with high tax rates, like California or New York, will scrutinize when the change in residency occurs. Moving your residency and business before any significant milestones, such as signing an LOI (Letter of Intent), can be vital. Many states will challenge changes in residency if they are too close to the sale date, so it’s essential to establish a clear timeline well in advance.

2 ESTABLISHING CLEAR RESIDENCY

Merely moving your business isn’t enough to prevent tax scrutiny. You must also establish clear residency in the new state. This includes changing your primary residence, registering to vote, getting a driver’s license, and even moving your dayto-day activities (such as banking and doctor visits) to the new state. States with higher taxes will look for signs that the move is legitimate and not just for tax purposes.

3 BUSINESS NEXUS AND STATE TAX OBLIGATIONS

Even if you move your business headquarters to a lower-tax state,

you must consider “nexus” rules, which determine whether your business still owes taxes to the original state. For example, if you still have employees, offices, or a significant portion of your operations in the original state, you may be liable for state taxes there. Fully transitioning operations to the new state is essential to avoid ongoing tax obligations in the higher-tax jurisdiction.

4 CONSULTATION WITH A TAX ADVISOR

It’s crucial to consult with a tax advisor who understands multistate taxation and residency requirements. They can help ensure you meet the necessary qualifications to establish legal residency and avoid potential challenges from the high-tax state. Additionally, tax advisors can model different scenarios and the overall impact on your post-sale proceeds, ensuring that the tax savings outweigh the costs of moving.

While this strategy is commonly used by some, it is important to understand the type of business that you own and whether or not the state will accept your residency as being in a different location than your practice. We have experience in situations where clients spend significant amounts of money moving to a state with no income tax, just for their original state (California, as an example), to fully tax the proceeds as if they still live in the original state. If this is a strategy owners are considering, it is important to consult with a tax professional far before making this decision.

MAKE YOUR TAX ATTORNEY OR CPA YOUR FIRST CALL

One of the most critical aspects of pre-sale tax planning is assembling the right team of professionals to guide the business owner through the process. Harriet emphasizes the importance of engaging with tax professionals early. “In my experience, working with a qualified tax advisor from the outset can make a huge difference. Ideally, business owners should start these conversations well before they begin the sale process to ensure they’re aware of all the potential tax implications.”

Harriet also highlights the diverse roles that tax professionals play. “Tax attorneys, CPAs, and financial planners each bring a unique perspective to the table. While the CPA might focus on ensuring compliance and preparing tax returns, the tax attorney can provide legal insights, especially in complex deal structures like installment sales or when addressing deferred tax liabilities. A financial planner can help align the tax strategies with broader wealth management goals.”

While we agree that your tax professional should be your first call, we advise that a financial planner should be your second or third (right behind your attorney). Often times, tax professionals only have isolated financial information, and rightfully so, their aim is to mitigate taxes. However, we have found that some tax reduction strategies don’t leave enough money for owner’s lifestyle. The role of a financial planner is to collaborate with a tax professional and run projections that

evaluate the tax benefits vs. lifestyle needs, ensuring that all strategies proposed align with the goals of the client.

Conclusion

According to Harriet, a successful tax planning strategy involves both foresight and flexibility. “No two sales are exactly alike, so it’s crucial to remain adaptable throughout the process. Regular check-ins with your tax advisor and making adjustments as necessary can help mitigate risks and ensure the best possible outcome.”

Selling a business is a complex process that involves many moving parts, and taxes can often represent one of the largest—and most overlooked—challenges. However, with proper planning, business owners can reduce their tax burden and optimize their financial outcomes. As Harriet Oberman highlights, understanding the implications of business structure, sale type, and potential tax liabilities is key to avoiding surprises during the sale process.

By engaging tax professionals early and considering strategies such as installment sales, charitable contributions, and relocation to lower-tax jurisdictions, business owners can position themselves for success. Every sale is unique, so the ability to adapt and collaborate with experts will ultimately provide the best path forward. With proactive tax planning, business owners can navigate the complexities of a sale while maximizing the financial benefits of their hard-earned success.■

THE CHOICE BETWEEN AN ASSET SALE AND A STOCK SALE CAN DRASTICALLY ALTER A BUSINESS OWNER’S TAX OBLIGATIONS.

HARRIET OBERMAN, CPA, CGMA

PARTNER

JRRO, ACCOUNTANTS & CONSULTANTS, A DIVISION OF SINGERLEWAK

DISCLOSURE: Information presented herein is for discussion and illustrative purposes only. It is not written or intended as tax or financial advice and may not be relied on for the purpose of avoiding any federal tax penalties under the Internal Revenue Code. The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and does not provide a guarantee of future success or similar services. You are encouraged to seek tax and legal advice from your attorney, finance professional and/or accountant before implementing any transactions and/or strategies concerning your finances.

How Randy Miller Guides Businesses Through Transitions as a Fractional CFO

How do you approach your role as a fractional CFO in the exit planning process, and what steps do you take to collaborate with other advisors and support the business owner throughout the transition?

I usually step into the exit planning process as a fractional CFO, either as the first advisor or as part of a larger team. My role starts by cleaning up financial statements and getting them ready for sale. Often, I act as the “quarterback” of the team, ensuring the business owner stays focused on day-to-day operations while I coordinate with advisors such as legal, accounting, and wealth management experts.

I also take charge of all financial matters, making sure the numbers align with the legal terms of the sale and keeping the owner informed every step of the way. Post-sale, I often stick around for 2-6 months to help with the transition and ensure a smooth handover to the buyer.

When do you typically join a business owner’s exit planning journey, and how do you adapt to varying stages, from early preparation to high-pressure situations like last-minute CFO transitions?

I usually get involved early in the process,

often before the business even goes to market. That said, there are times when I’m brought in at critical stages. For example, I once stepped in when a CFO quit just six weeks before a company was set to go to market.

At that point, the company was in the middle of due diligence and preparing for its first-ever audit. I had to quickly take control of the financials, finalize the audit, and prepare marketing materials. It was both challenging and exhilarating to manage the audit while keeping the business sale-ready. Despite the high stakes, I got everything back on track and guided the company through the sale process.

That experience—and others like it—show that I can jump in at any stage of the exit planning journey, even in high-pressure situations, and ensure the process stays on course.

Can you give me a technical definition of what working capital is?

Working capital is defined as current assets minus current liabilities, plus cash. However, in a sale transaction, cash is typically excluded because it goes with the seller.

Many business owners mistakenly think working capital is just the balance in their

bank account, but it’s not. Working capital is actually the funds needed to keep the business running—ensuring receivables exceed liabilities, particularly over the next few months.

Can you share stories of deals that faced financial strain due to miscalculating working capital needs?

While I haven’t seen a deal collapse because of working capital miscalculations, I’ve experienced plenty of situations where buyers and sellers clashed over differing expectations. Buyers often want more working capital as a cushion, especially if they anticipate disruptions post-sale, like changes in customer relationships or a temporary drop in business performance.

Sellers, on the other hand, typically operate with minimal working capital, focused on their immediate needs. These differences often boil down to negotiations. For instance, a buyer might insist on three months’ worth of working capital post-sale, while the seller— having run the business efficiently with less— might feel that’s excessive.

In cases where no immediate agreement is reached, we often use an escrow arrangement to resolve the issue. Essentially,

it’s like saying, “This is your money, but we’ll hold it for 90 days to make sure nothing unexpected happens.”

These negotiations aren’t really about misunderstanding working capital but about balancing different risk tolerances. The buyer, facing the uncertainty of a new acquisition, wants a buffer. The seller, familiar with the business’s operations, sees no need for it. While this can lead to tension, we usually find a resolution through negotiation, often with holdbacks or escrow accounts to bridge the gap.

How do you accurately assess and plan for working capital requirements in sale agreements?

Accurately assessing and planning for working capital starts with a detailed look at the business’s financial needs in the months following the sale. I start by analyzing the company’s current liabilities—short-term debts like trade payables—and comparing them to the expected receivables. This gives us a clear picture of what the business needs to operate smoothly post-sale.

Usually, buyers assume the trade payables and other current liabilities, while long-term debt is paid off at closing. Buyers typically want enough working capital to cover two to three months of operating expenses, like rent, utilities, and payroll. This creates a cushion in case of disruptions during the transition period.

It’s also essential to work closely with the legal team to ensure the sale agreement reflects these financial realities. In one deal, the buyer initially proposed a complicated working capital calculation, only to simplify it five days before closing. That change, while easier to manage, highlighted how fluid these negotiations can be.

Ultimately, my goal is to create realistic expectations for both sides—ensuring the business has enough liquidity post-sale while balancing the buyer’s need for a safety net and the seller’s desire to retain as much cash as possible. Most negotiations conclude with a reconciliation 90 days after the sale, where the actual working capital is reviewed and adjusted as needed. ■

RANDY MILLER

FRACTIONAL CFO

RMM ACCOUNTING

As an Fractional CFO, Randy brings over 35 years of experience to his work with privately held companies; building better organizations for growth; and maximizing value for a sale or re-capitalization. He specializes in strategic planning, organizational development, and accounting and finance management services for businesses. His passion is working with Owners/ CEOs/Presidents to maximize enterprise value by sharing his knowledge gained from working with start-ups, growth companies, and turnarounds for over thirty-five years. His role is to build the accounting and support functions to allow the owner to focus on the business, not the back office. For a recent client looking to sell their business, Randy built the financial statements, and worked with the client’s legal team and CPA, and the buyer’s due diligence team to close the transaction. The result was a successful 9-figure sale for the client. His background includes companies in mortgage banking, retail, film and TV, technical services, B2B services, and light manufacturing ranging from $5 million to over $200 million in revenue. His experience encompasses working with management, boards, corporate and investment bankers, attorneys, trustees, accountants, and investors with respect to organizational growth, corporate strategy and structure, restructuring, expansion, and liquidity events. During his career, Randy has negotiated over $500 million in debt and equity investments, including warehouse lines of credit, and equipment financing. He has also managed over $100 million in investor funds and over $500 million in loan portfolios. Randy graduated from the University of Southern California with a Bachelor of Science in Accounting in 1980. He lives in the San Fernando Valley with his wife and has two sons. He is a Masters swimmer and competes in both pool and open water races.

Unlocking Value with John DuHadway: HOW AUDITED FINANCIALS ELEVATE BUYER CONFIDENCE

Why are audited financial statements critical when preparing a business for sale, and how do they increase a buyer’s confidence and help secure higher offers?

Audited financial statements are critical when preparing a business for sale because they boost buyer confidence and help secure higher offers. With over 30 years of experience as a former Deloitte executive, CEO, and CFO, I know how important credibility in financial reporting is. I often compare it to buying a used car—when you buy from a dealer with a Carfax report versus a private seller, the credibility makes all the difference. Validated financial statements give buyers confidence and shift their focus from scrutinizing the numbers to seeing the business within the context of industry standards and multiples, making it much more attractive.

In my career, I’ve been through four successful exits ranging from $50 million to $2.5 billion. Businesses present financials at various levels, from internally prepared documents to fully audited statements. An audit is the gold standard—it involves standardized procedures and rigorous validations to ensure accuracy and reliability, except in cases of fraud. Buyers value this assurance,

and it plays a key role in negotiating favorable terms and closing successful transactions.

What steps should a business owner take to ensure their financial statements are auditready?

Getting financial statements audit-ready requires careful preparation, and often, expert guidance. From my experience building and scaling companies, I always advise hiring someone with the right expertise to ensure internal controls are robust. This is especially important for family-owned businesses, where operations might be tightly held by the founder, and systems are often not prepared for a sale. Bank reconciliations, for instance, are a major focus—issues here can indicate deeper problems.

It’s also important to align accounting practices with Generally Accepted Accounting Principles (GAAP) and industry standards. A good CPA can help navigate complex adjustments to ensure everything is auditready. This process is crucial for presenting reliable financials that buyers can trust.

How does demonstrating consistent revenue and profit growth impact the attractiveness of a business to potential buyers? Consistent revenue and profit growth are essential for making a business attractive

to buyers. Markets don’t like volatility, and buyers feel the same about erratic businesses. I always liken it to the tortoise in the classic fable—slow and steady wins the race. Consistency builds confidence in the business’s ability to sustain growth. It reassures buyers that the business is robust and well-positioned for the future. With stable financial performance, a business becomes significantly more appealing.

If a financial history shows fluctuations or periods of stagnation, how should a business owner present this to potential buyers, and how far back should they go? When a financial history shows fluctuations or stagnation, transparency is critical. A transaction is a process, not an event, so addressing any issues upfront is essential. Hiding problems isn’t an option—everything will eventually come to light. I recommend normalizing financial statements by documenting anomalies properly and focusing the conversation on the future potential of the business. Be honest about the past, but show how the business is positioned for growth. It’s about creating a narrative that builds confidence in what’s ahead.

What common mistakes do business owners make when preparing financial statements for a sale, and how can these be avoided?

There are several common mistakes

I’ve seen business owners make. One big issue is not understanding the “holy trinity” of financial statements: the balance sheet, income statement, and cash flow statement. All three need to be accurate because they work together to tell the business’s financial story. Another frequent mistake is focusing too much on tax strategies at the expense of financial clarity. I’ve seen owners try to outsmart the government, but this often undermines the integrity of the financials—the very thing buyers care most about.

Other issues include misclassification of employees, inaccurate or untimely bank reconciliations, unrecorded liabilities, and improper handling of financial instruments. These red flags can derail a sale. My firm works closely with clients to ensure their financials are clear and reliable, avoiding these pitfalls and positioning them for success.

Can you share an example of a business that successfully presented its financials for a sale, including what worked well and the challenges they overcame?

I worked with a company that faced significant challenges due to inadequate financial management. Their acting CFO, one of the partners, didn’t have the

necessary experience, and this led to a cascade of problems. Their accounting was inaccurate, and a small tax firm was handling their taxes. They struggled to secure a warehouse line of credit until a potential buyer, who held a convertible note, brought me in to help.

One of the first things I noticed was that the CFO was providing overly detailed, fourpage income statements. I streamlined these into concise, executive-level summaries, which helped secure financing and improved the company’s position in the sale process. Despite these efforts, they ultimately faced a “crammed down” situation from a cap table perspective. This experience underscored for me the importance of having experienced financial leadership from the start. That’s why my firm brings seasoned expertise to every engagement, tailoring our approach to each client’s unique needs and growth stage. ■

PROFESSIONAL BIO:

JOHN DUHADWAY FOUNDER AND CEO DUHADWAY, LLC

John is a former Deloitte Executive, experienced in building clients of all sizes. He is also a former CEO and CFO with 4 successful exits ranging from $50M-$2.5B, and has personally invested in private equity companies with at least a dozen successful exits.

As he has done as an operator for more than 30 years, John leads clients in vision and strategy development and guides them through building, scaling, capital raising and exiting their companies.

John founded the firm to bring to small business clients the power of highly experienced leaders. He leads a team of former C-Suite executives to bring the missing leadership ingredient to clients in a measured pace aligned with the client’s growth status. He works alongside each teammate on every engagement.

CAN CULTURE MAKE OR BREAK YOUR BUSINESS SALE?

BY STACEY MCKINNON AND JAMES REYNOLDS

When preparing a business for sale, financials are often the first thing potential buyers review. But, behind the numbers lies a crucial, often-overlooked factor that can impact the deal: company culture and the strength of the management team. A misaligned culture and a weak leadership team can significantly undermine the value of a business, regardless of how impressive the financials may be. We spoke with industry professionals Stacey McKinnon and James Reynolds to delve into the importance of culture and management in the sale process.

COMPANY CULTURE AS A DEAL-BREAKER

Both Stacey and James agree that company culture is a key element in determining the success of a business sale. James explains that culture impacts many facets of the sale process, particularly in businesses that rely on strong employee and client relationships. “If you have a toxic culture, it is difficult to have strong financial performance, and that will be affected,” he warns. James emphasizes that culture is always present— whether good or bad—and can heavily influence the perception of potential buyers. He shares the story of a granite company in Denver, where the owner’s overbearing leadership style created mistrust within the team. “The owner micromanaged everything, criticized his staff constantly, and failed to empower his leaders to make decisions. This led to a toxic work environment,” James explains. Despite strong financials, buyers were hesitant to move forward due to the negative culture, and the owner eventually had to dissolve the company.

Stacey takes a broader view of the consequences of poor culture during a sale. She highlights that culture not only impacts employees but also extends to clients and customers, who can sense instability during transitions. “The cultural impact matters— whether your key team members will stay, and whether clients will feel the transition is seamless,” Stacey says. For buyers, a company’s reputation and trust built with employees and clients are often as important

as its profit margins. If key employees leave due to dissatisfaction or a perceived lack of alignment, the company’s future stability becomes uncertain.

In Stacey’s experience, the key to avoiding cultural pitfalls is ensuring transparency and involvement at all levels of the organization. She advises business owners to engage employees in the change process rather than having decisions imposed on them: “Sometimes during a transition, it can feel like change is happening all around you, but if people are participating in the change, their voices are heard.” The key point here is that owners should take the time to overcommunicate with employees so that they feel secure and involved throughout the transition.

DEVELOPING A COMPETENT MANAGEMENT TEAM

When it comes to building a management team that instills confidence in potential buyers, both Stacey and James emphasize the importance of reducing over-dependence on any single leader. Stacey suggests that the management team should be able to function autonomously, and no one leader should be irreplaceable. “If a member of the leadership team theoretically exits, there should be a plan to replace them within 2 to 6 months without disrupting business

operations,” she explains. It is important to have these plans in place in an official continuity plan, that way the business will seamlessly operate in most situations.

James, who has facilitated leadership transitions in many businesses, agrees: “You’ve got to develop your people and give them the autonomy to make decisions. A trust-and-inspire environment is critical to ensure that the business operates smoothly, even in the owner’s absence.” He also underscores the importance of aligning the management team around a shared vision, so everyone is working toward the same goals. “If your management team doesn’t have a clear direction or vision, you’re going to run into operational inefficiencies, and that’s a red flag for any buyer.”

Stacey suggests a practical approach to assessing leadership strength: having key leaders take a sabbatical. “If a leader can leave for a month and the business still runs well, you’ve got a resilient organization,” she says. This test not only ensures that the team is capable but also highlights the company’s ability to function independently from the owner, which is vital in securing a sale. Additionally, she points out that businesses overly reliant on “permissionbased” decision-making often face stagnation: “An organization that requires constant approval from the top will struggle to grow. Buyers want to see autonomy and resilience at all levels.”

James also shares that successful businesses foster leadership development through coaching and empowerment. “You need to

create an environment where employees can grow into leaders,” he says. “It’s not just about having a manager; it’s about having someone who can lead and inspire others.”

he recounts. By preparing his leadership team well in advance, this owner ensured that buyers felt confident in the company’s ability to thrive without him.

SUCCESSION PLANNING AND LEADERSHIP CONTINUITY

Succession planning plays a critical role in making a business attractive to buyers. Stacey stresses the importance of demonstrating leadership continuity during and after the sale. “If a business owner plans to fully exit post-sale, it’s not always realistic to expect a clean break,” she says. “The best scenario is for the owner to stay on as a consultant for at least 6-24 months, even if it’s just showing up one or two days a week.” This demonstrates to both employees and buyers that the owner is still invested in the company’s success, even after transitioning out.

James emphasizes that without proper succession planning, even a financially strong business can falter during a sale. He shares a success story of a business owner who implemented multiple layers of leadership within his company. “This owner had a large operation, but he didn’t have to be there for the business to run smoothly. He built a strong team, and when it came time to sell, the process was completed much faster than expected, with a higher offer than anticipated,”

On the flip side, James has also seen how the lack of proper succession planning can derail deals. In the case of a construction and materials company, the owner’s failure to develop leadership capabilities within his team led to the eventual collapse of the business. “The general manager brought in to help with the transition left after a few months because he couldn’t work with the owner’s culture of mistrust,” James recalls. The business owner ended up selling off parts of the company instead of achieving a complete sale, a direct result of not having strong leadership in place.

SHOWCASING MANAGEMENT STRENGTH DURING A SALE

Buyers want to feel assured that the company they’re investing in will continue to thrive without the current owner. Both Stacey and James suggest practical ways to showcase management strength during the sale process. Stacey advises focusing on more than just the financial performance. “You want to show that your team has balance—a focus on financials, culture, and clients. These are the three edges of the triangle,” she explains. Highlighting how the leadership team

EVEN WITH STRONG FINANCIALS, A NEGATIVE COMPANY CULTURE CAN MAKE BUYERS HESITANT TO MOVE FORWARD.

supports not only the financial aspects but also the cultural and client-facing elements of the business creates a more compelling case for potential buyers.

James adds that business owners should attribute the company’s success to the people who work there. “A business owner should highlight the work being done by the employees and show appreciation for their contributions,” he says. “The companies that stand out are those where the owner doesn’t take full credit but instead recognizes that the success of the business is because of the people they’ve built around them.” This sense of humility and team-centric leadership resonates with buyers, who are looking for assurance that the company can run smoothly without the current owner.

“During transitions, people need to feel like they’re part of the process, not just at the whim of decisions happening around them,” she says. As mentioned prior, by soliciting feedback and involving team members in decision-making, business owners can foster trust and ensure a smoother transition for all parties involved.

James points to a successful sale in the shower and tempered glass industry. The owner had built a robust leadership team and developed multiple levels of leadership, allowing the business to run independently of him. “When it came time to sell, the process was quicker than expected, and the business attracted a higher offer due to its operational strength,” James recalls. He adds that buyers are more likely to offer higher bids for businesses that demonstrate leadership continuity and organizational stability, as it reduces the perceived risk.

LEARNING FROM SUCCESS STORIES

Both Stacey and James shared examples of businesses that achieved successful sales due to strong leadership teams and positive company culture. Stacey emphasizes the importance of clear communication and involving employees in the transition process.

CONCLUSION

DON’T NEGLECT CULTURE IF YOU ARE PREPARING TO SELL

The lessons here are clear: a company’s culture and leadership team are just as critical to the success of a sale as its financials. Business owners should focus on building a culture of trust, developing a strong leadership team, and ensuring

continuity in leadership even post-sale. As James puts it, “You can be a great manager but a terrible leader. Focus on becoming a better leader who empowers others, and your business will be much more attractive to potential buyers.” ■

MCKINNON, CFP ® COO, CMO, AND PARTNER MORTON WEALTH

JAMES REYNOLDS REGIONAL LEADERSHIP/AREA MANAGER

BBSI

STACEY

Mastering Due Diligence:

BRENT REINKE’S STRATEGIC APPROACH TO BUSINESS EXITS

How does your unique background as both an entrepreneur and a lawyer shape your role in the exit planning process, particularly when guiding business owners through unfamiliar complexities like tax implications, indemnity provisions, and due diligence?

I believe I play a unique role in the exit planning process because of my background as both an entrepreneur and a lawyer. Having founded several companies and worked extensively as a transactional lawyer in mergers, acquisitions, and finance, I bring critical insight from both the legal and operational sides of a business.

Education is a big part of what I do, especially since many business owners have never been through something like this before. I make it a point to introduce them to the complexities of the process, from understanding redacted purchase agreements to navigating due diligence checklists.

My clients come from various industries— technology, consumer brands, manufacturing, biotech, and life sciences— and rely on me throughout the business life cycle. My goal is to prepare them for what’s ahead, making sure they understand tax implications, indemnity provisions, and why reps and warranties are so crucial in

an M&A transaction. It’s not just about the gross purchase price you receive at closing; it’s about what you keep after taxes and potential indemnification claims.

Given your experience, at what stage of the exit planning process do you typically engage with business owners—whether it’s early on for strategic planning or later when a deal is already on the table?

My involvement in the exit process really depends on the circumstances. For my ongoing clients, I’m often involved earlier because I can help with long-term strategic planning, pre-acquisition planning as well as negotiating the deal structure when an offer comes in and assembling the advisory team.

Other times, I’m brought in later, when there’s already serious interest in selling the company. In those situations, I focus on the immediate needs of the transaction. In any case, when major transactions like mergers or acquisitions come up, my M&A team and I guide our clients through those key events.

What is the biggest surprise most clients face their first time through due diligence?

The sheer amount of information being asked for is usually the biggest surprise. It can feel overwhelming. I’ve seen legal and

business-oriented due diligence checklists run up to 18 pages long—it’s a lot.

Having co-founded businesses myself, like the consumer hydration brand Vapur, I understand how overwhelming the process can be for entrepreneurs. That’s why I try to prepare clients early by showing them a sample due diligence checklist in our initial meetings. It helps set expectations and gives them a clearer picture of just how detailed and comprehensive the review will be.

What are best practices to prepare someone for due diligence?

Setting proper expectations is key. Most people don’t know what they’re getting into, so I emphasize the importance of preparation well in advance. One of the best things a company can do is start organizing documents early—before the due diligence process even begins.

I recommend using a virtual data room and populating it with the necessary documents in an organized manner. This kind of preparation can make a huge difference when the due diligence process kicks off.

What internal team members are typically part of the due diligence process?

The owners will definitely be involved to

some degree, especially since they’re often responsible for indemnity claims. Other critical team members usually include the CFO or controller and, in many cases, the head of Human Resources (HR).

In states like California, where employment law is a significant concern, HR plays a crucial role. Issues like employment litigation, data privacy, and cybersecurity can create significant risks, so it’s important to have someone who understands these areas on the team.

What role do external advisors play in the due diligence process, and who are they?

External advisors are vital. Accountants handle business due diligence, while my team focuses on the legal side. We help facilitate the collection of legal information and review it carefully. Often, we assist clients in setting up virtual data rooms to ensure all required documentation is gathered and organized efficiently.

Investment bankers are another key part of the process. They often take the lead on gathering business due diligence documentation and setting up their own virtual data rooms. Their teams handle much of the heavy lifting on that side, which allows us to focus on the legal aspects. ■

Disclosure: Information presented herein is for discussion and illustrative purposes only and should not be treated as tax, legal or financial advice. The views and opinions expressed in this article are those of the interviewees and may not necessarily reflect the views of Morton Wealth. The above information may not be representative of the experiences of other clients, and do not provide a guarantee of future success or similar services. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

PROFESSIONAL BIO:

BRENT REINKE PARTNER

STRADLING YOCCA CARLSON & RAUTH

Brent Reinke advises businesses ranging from emerging growth and venture-backed organizations to larger corporations with multinational operations. As a 30-year transactional lawyer, hands-on entrepreneur, founder of numerous companies and organizations, and holder of multiple patents, Brent combines exceptional legal experience, business acumen, and real-life business operational perspective.

Biotech, life science, technology, consumer brands, sports and outdoors, manufacturing, and telecommunication companies rely on Brent’s advice throughout the business life cycle. Earlystage high-growth companies often depend on him as their outside general counsel while clients at all stages benefit from his vast network of contacts, which help them connect with business opportunities and resources. Whether his clients face corporate operations, product development, licensing, mergers, acquisitions, finance, or planning issues, Brent formulates solid strategies to optimize growth potential and avoid problems.

In 2024, he was selected as one of the 50 Most Influential Individuals in the Central Coast /101 Corridor by the Pacific Coast Business Times Brent is the co-founder of the consumer hydration brand Vapur and the founder and chairman of the BioScience Alliance, a nonprofit organization providing networking and resource opportunities to the life science community. He also is co-founder and chairman of the Gold Coast Executive Forum, a business organization for C-level executives.

AVOIDING DEAL PITFALLS with Michael Schuster

ways to maximize value. I believe in meeting these companies early on and helping them prepare for something they’ve never been through before. It’s about patience and commitment to long-term success.

How do you differentiate yourself from other investment bankers?

I bring a hands-on, boutique approach to investment banking, particularly for owner-founders, entrepreneurs, and family-led businesses that have limited experience in transactions. Since joining Cross Keys Capital in 2019, I’ve focused on lower and middle-market sell-side mergers and acquisitions, primarily for businesses with EBITDA over $2 million. My entrepreneurial background—gained from over 25 years of owning and operating businesses—helps me connect with my clients and offer guidance that’s deeply informed by my own experiences.

What we do well is work with business owners who are considering institutional capital for the first time or contemplating a full exit. Unlike larger, transaction-driven investment banks, my team is dedicated to building relationships long before a sale. We often engage with businesses three to five years in advance, advising them on

In an industry where many investment banks jump in at the last minute and focus on short-term gains, our approach is different. I emphasize the importance of structured preparation to avoid rushed decisions that could undervalue a business. Our goal is to help business owners achieve higher valuations. We prioritize readiness, attractiveness, and value enhancement, guiding clients through unfamiliar terrain rather than simply executing transactions.

When do you ideally like to engage with business owners in the exit planning process, and how does early involvement help you maximize their company’s valuation and market attractiveness?

I prefer to work with business owners as early as possible—ideally three to five years before they’re ready to sell. I’d much rather meet someone three to five years out than in the same year they’re looking to sell. Early engagement gives us time to assess the current valuation and identify gaps between the business’s present value and its potential market value. If the gap is substantial, we act as advisors, recommending operational changes to improve the business’s market attractiveness before entering a formal transaction process.

That said, I understand this ideal scenario doesn’t always happen. Many times, business owners come to us when they’re closer to wanting to sell. Typically, we get involved when someone says, “We’re thinking of starting to prepare for an exit.”

At that point, we provide a preliminary valuation as a benchmark for any necessary improvements. By the time we’re formally engaged, the company is in a much better position to command a premium valuation, which often leads to a more successful sale.

What are some common challenges business owners face when negotiating deals?

One of the biggest challenges in structuring these transactions is managing expectations. That’s really what we’re in the business of—managing expectations. It’s not just about understanding the valuation; it’s also about knowing how it will be paid out and the deal structures involved. In today’s market, almost every deal includes some form of structured payment, whether it’s a seller note, earnout, or rollover equity.

The challenge is understanding the risks associated with these structures. For instance, performance targets tied to earnouts can impact the actual payout, which might differ from the headline valuation. With today’s higher interest rates, these structured payouts are even more common. I make sure business owners thoroughly understand and anticipate

potential outcomes, so they’re comfortable with the deal structure before moving forward.

Can you share any real-world examples or lessons learned from past transactions?

Over the years, I’ve worked across various industries, including logistics, freight transportation, manufacturing, and recurring service models. One recent example comes to mind where a business owner set a minimum cash proceeds target. This allowed him to view the earnout as a secondary benefit rather than something he relied on. That approach gave him peace of mind because he wasn’t solely dependent on hitting performance targets.

On the other hand, I recall a deal with a growth company that had ambitious earnout targets. Unfortunately, an economic downturn after the sale made those targets difficult to achieve. These experiences remind me of the uncertainty earnouts bring and the importance of structuring deals with foresight. External factors can affect the final payout, so planning for different scenarios is crucial, especially when business owners are no longer in control after the sale.

My background in executive management and entrepreneurship helps me relate to business owners. As a generalist in M&A, I bring a broad perspective to every transaction, offering strategic insights and practical advice to ensure a successful exit. ■

PROFESSIONAL BIO:

MICHAEL SCHUSTER MANAGING DIRECTOR

CROSS KEYS CAPITAL, LLC

Michael is a Managing Director and joined Cross Keys Capital in 2019. Michael focuses on lower and middle market sell-side Merger & Acquisition engagements for entrepreneurial and family-owned businesses greater than $2 million of EBITDA. Engagements are often part of a well-planned exit or transition including recapitalizations, management buyouts, succession, retirement, partner separations and unplanned life events. The entrepreneurial skills gained over twenty-five years of owning and operating businesses enables Michael to identify well with lower and middle market companies as an effective hands-on advisor. Earlier experiences include Executive Management and CFO of a $60 million lower middle market Logistics and Freight Transportation company, owning and operating a commercial real estate portfolio and spearheading exceptional growth leading to successful exit strategies for several sales, leasing, manufacturing and distribution businesses. Current M&A activities cover a broad range of industries as a generalist.

Michael graduated from the University of Miami with degrees in Business Finance and Transportation.

LEARNING A NEW LANGUAGE: UNDERSTANDING ROLLOVER EQUITY, EARNOUTS, AND SELLER NOTES

BY ARTIN SEDIGHAN AND GREG MARTIN

Imagine this scenario: You have built a highly successful business over the last 20 years. You have done all the right things to make the business resilient and not dependent on you: you have an excellent management team, a diverse client and revenue base, great company culture, well documented processes and clean financials.

You feel you are ready to take the business to market. The valuation comes in at $10 million – slightly more than what you expected –naturally, you are elated! You and your investment banker go to market and you eagerly await.

However, much to your dismay, as the offers start coming in from potential buyers, there are various “conditions” to the deal like an “earnout”, “rollover equity” and even a “seller note.”

You were expecting cash at closing – now it feels like the rules of the game are being changed. It’s like learning a whole new language. Your first inclination might be to reject these offers. Naturally, we as humans are wired to be fearful of the unknown – as we do not have context for how to evaluate the potential risks associated with something we don’t know.

For many owners, especially those exiting for the first time, these new rules can feel intimidating. We believe that if owners are educated upfront going into a transaction on what these deal terms are, they can more thoughtfully navigate the transaction to a successful conclusion rather than allow fear to dominate by letting what might be a good offer slip away.

To help us evaluate both the benefits and risks associated with these three common tools, we partnered with Greg Martin, M&A Advisor with Keystone Business Advisors and Artin Sedighan, President and Managing Director of Cappello Global, LLC.

IT’S LIKE LEARNING A WHOLE

WHOLE NEW

THE EARNOUT: SHOW THEM WHAT YOU ARE WORTH

The old adage is that sellers think their business is worth more than what buyers are willing to pay. How does the market bridge this gap? Greg notes, “Earnouts are often the best tool for addressing a valuation gap when the seller believes their business is worth more than the buyer thinks it is currently worth.” For example, let’s assume a buyer is willing to acquire a business for $15 million, but the seller really wanted $20 million. They might agree that the seller will receive $15 million in cash at closing and can earn up to an additional $5 million over time, assuming the business is able to achieve certain benchmarks (e.g., grow the revenue or earnings at an agreed upon rate).

CONSIDERATIONS 1POTENTIAL CONFLICTS OF INTERESTS

Let’s face it – in a sale, the buyer wants to acquire the business at a price that is attractive (i.e. below the intrinsic value of the company), and the seller wants a premium for their years of hard work. There is an inherent conflict of interest. Both experts agree that negotiating earnouts often comes with challenges. Artin explains that earnouts can create tension: “The buyer doesn’t want to set a meaningless target, but the seller will want to make sure the goal isn’t unreachable.” Greg adds, “Emotion often runs high during these negotiations. Sellers may feel the buyer won’t be able to run the business as well as they did, which creates friction.”

BENEFITS

1GREATER

ECONOMIC BENEFIT:

In this example, assuming the owner is confident in his business and his ability to execute, he can leverage an earnout as part of the deal structure to earn a greater level of total consideration.

2 DERISK THE TRANSACTION:

From the buyer’s perspective, since the earnout is contingent upon the performance of the seller, it makes the transaction feel less risky since earnout payments will only be made if certain milestones are hit. As a seller, an earnout shows that you are confident in the business you have built and increases the likelihood that a deal will come to fruition.

2 CLEAR AND APPROPRIATE METRICS

To ensure everyone is on the same page and manage this potential conflict, Artin advises that performance thresholds for earnouts must be realistic and based on appropriate key performance indicators (KPIs). “The seller should assess how likely they are to hit those milestones,” he notes, emphasizing that earnouts should be tied to factors the seller can influence. He also points out that aligning interests is crucial. “An earnout that encourages the buyer to sabotage targets is a recipe for disaster.”

Additionally, Greg adds that the agreement should include clear metrics for measuring earnout performance, whether it’s based on earnings, revenue, or customer retention.

If an earnout structure is required, Greg recommends his sell-side clients to tie it to revenue or gross profit rather than to earnings. It is much easier for a seller to audit revenue or gross profit. A seller will have no control over a buyer’s operating costs postclosing. which creates substantial risk when tying it to earnings. “It’s important to ensure the buyer can’t manipulate the financials to avoid paying the seller,” he says. In a recent deal Greg worked on, they structured the earnout with multiple thresholds: “Rather than it being 100% or nothing, the earnout was tiered so that if certain lower performance thresholds were met, the seller still received partial payments.”

ROLLOVER EQUITY: THE SECOND BITE OF THE

APPLE

Rollover equity is when a seller receives shares in the acquiring company rather than all cash for a portion of the deal. It’s not uncommon in larger transactions and when the acquiring firm is in the same industry. This is known as a strategic acquisition. Greg explains that this approach is more common in larger deals, typically over $10 million, and usually seen with private equity buyers. “Rollover equity is a tool used primarily in private equity deals, aligning the seller’s interest with the buyer’s post-sale.”

BENEFITS

1 ADDITIONAL UPSIDE

Rollover equity offers the potential for the business owner to take chips off the table and still have upside. If the business grows under the new ownership, the seller’s retained equity could be worth more in the future. It’s not uncommon for an owner to receive a large portion of cash at closing (maybe subject to an earnout) and to roll over 20%. In our opening example, we assumed a

$10 million business; in this case, the owner receives $8 million at closing and has $2 million of rollover equity in shares of the acquiring firm. By maintaining an ownership stake, sellers can still benefit from the future growth of the business, a concept often referred to as getting a “second bite of the apple.” Assuming the buyer is able to execute their business plan over the next 5-10 years, the value of the seller’s $2 million may grow to a significant sum of money (this is the second bite). Artin adds that rollover equity can provide sellers with significant upside. He shares an example where a client sold 75% of their company but retained 25%. In this instance, the seller received 75% cash at closing, with the remaining 25% rolled into the buyer’s company as equity, aligning both parties for future success in the new entity. “That seller’s minority stake eventually became worth more than the 75% they initially cashed out,” he explains, showcasing the potential benefits of rollover equity. In another case, rollover equity was structured so that if the business hit certain high-performance metrics, the seller’s equity stake would increase over time — a scenario that ultimately yielded substantial returns for the seller.

2 DEFERMENT OF TAXES

One of the main benefits of using rollover equity is that the seller defers paying capital gains taxes at the time of the initial sale for the portion of the deal that is rolled into the acquiring firm. This can be helpful to the seller from a cash flow perspective. It requires the legal documents to be structured in a way that ensures compliance with all

applicable federal and state tax laws. We would highly recommend that the seller work with a qualified CPA and transaction attorney who understands and has experience with these types of transactions.

3 ADDITIONAL RESOURCES/ OPPORTUNITIES

Lastly, one of the more overlooked aspects of rollover equity is that a seller may not be ready to walk off into the sunset and retire. Specifically, in a strategic acquisition, the acquiring firm may offer a new career path for the seller. Perhaps the seller has a unique skill set that can be leveraged to enhance the other divisions of the buyer. Alternatively, if the seller continues to run their company under the umbrella of the parent organization, the acquiring firm might have expertise or resources that the seller can leverage to continue to grow their business and thereby help increase the enterprise value of the larger organization.

CONSIDERATIONS

1POTENTIAL INVESTMENT LOSS

A seller must realize that while he might have the potential for a big pay-off in the future, the reverse holds true as well. The seller’s investment comes down to how well the buyer can execute their business strategy. Greg shares, “There’s a risk that the new entity may not perform as expected, and the seller could lose the value of their investment.” Artin adds, “It’s crucial for sellers to evaluate

the buyer’s ability to grow the business and ensure their interests are aligned.”

2 LACK OF CONTROL

Building on the point above, one of the biggest risks that the seller faces is that they will no longer call the shots. For years, as the CEO of their business, they have been the key decision maker. Once an owner sells, in most cases, the seller will answer to someone else. This loss of control carries not only practical day-to-day challenges but also psychological and emotional risks as well. A seller needs to think long and hard about how it will feel to answer to someone else.

3 ILLIQUIDITY

If a seller agrees to roll over equity as part of their deal, they need to recognize that they will hold an interest in either a private security or if it is public stock, it will likely carry restrictions on when they can access liquidity. Often times, PE firms and other institutional investors use rollover equity as part of a “roll-up strategy” where they are acquiring many companies similar to the seller and aggregating them under the umbrella of the buyer. Their goal is to monetize the strategy at some point in the future, either through an IPO or selling the entity to an industry leader. Typically, there is limited liquidity to access your investment until this realization event occurs.

DEFERRED TAXES ON ROLLOVER EQUITY CAN

BE A CASH FLOW

ADVANTAGE.

SELLER NOTES: YOU BECOME THE BANK

Over the last few years, as the Federal Reserve has increased interest rates, borrowing costs to fund deals have increased as well. The higher cost of capital is affecting the M&A markets and consequently, investment bankers and private equity firms are having to be more creative with their deal structures.

A common deal structure typically involves a combination of equity from the buyer along with debt from a bank or other lender. If a bank is unwilling to lend the entire amount needed over the equity from the buyer to arrive at the purchase price, this is where a seller note can make sense.

A seller note is where the seller acts as the bank for a piece of the deal. Instead of receiving 100% cash at closing, the seller is willing to accept a promissory note from the buyer for a portion of the transaction in exchange for periodic payments of principal and interest. Seller notes are not contingent on performance and can be secured by the assets of the business and, sometimes, personally guaranteed by the buyer. They are used when the buyer can’t secure enough outside financing to offset high borrowing costs or to ensure the seller stands behind their business.

BENEFITS

1 FLEXIBLE FINANCING

One of the main benefits of using a seller note is that it’s a way to get a deal done. Greg shares a real-world example involving a seller who was initially against taking a seller note. “He demanded 100% cash, but in the end, every buyer pushed back, and the seller realized he had no choice but to agree to a seller note,” Greg recalls. This demonstrates the importance of flexibility and understanding why certain deal structures are necessary. Eventually, the deal closed with a substantial seller note, and the seller acknowledged that it was the only way to finalize the sale. Additionally, Greg shares that some deals may include balloon payments or hybrid payment schedules. While a typical seller note is amortized over 3-5 years, in certain cases a hybrid structure might be required due to the expected cash flow of the business. For example, a seller may be willing to work with a buyer to use a longer amortization schedule, such as 10 years, which would reduce the annual payments early on, but then require a balloon payment at the end of the fifth year.

2 LEGAL PROTECTION

Unlike an earnout and rollover equity, both of which are predicated on future performance that may or may not be under the seller’s direct control, a seller note is a legally binding agreement and should be structured with protection in mind. Greg advises, “Ensure that the seller note is secured by a security agreement, and in some cases, a personal guarantee from the buyer can help mitigate risk.”

CONSIDERATIONS

1 DEFAULT RISK

The most common challenge with seller notes is ensuring that the buyer is able to honor their commitment and pay the note as promised. Greg highlights that while legal protections are in place, reality often requires cooperation between buyer and seller. “If the buyer faces financial difficulties, the seller may need to be flexible with payment terms,” he explains. He shares an example where a seller helped a buyer by deferring payments or temporarily reducing interest rates when they ran into financial difficulty, explaining that a cooperative relationship post-sale can be critical to ensuring payments are made.

2 REALLY… MORE RISK, LESS RETURN?

All other things being equal, if someone takes on more risk, they should be compensated with a higher return; however, this does not always hold true with a seller

note. One of the challenges with a seller note is that it’s often subordinated to a bank or other senior loan, meaning the senior lender gets paid first if the business struggles. This puts the owner in a less advantageous position relative to the senior lender. Additionally, depending on the cash flow of the business, the seller note might carry an interest rate that is below market for the risk being assumed. Greg shares an example where high financing rates charged by a bank required a seller to carry a substantial note at a lower rate to offset the high costs. “Without that seller note, the deal would have likely fallen apart due to the financing challenges,” he explains. However, owners should look at the totality of the deal, not just the seller note, to see if the transaction makes sense for them.

If an owner has a working knowledge of potential deal terms like rollover equity, an earnout and seller notes, they are less likely to a make knee-jerk reaction and reject an otherwise fair offer simply because they are unfamiliar with this language.

Additionally, at Morton Wealth, when we partner with owners who are involved in a sale, we build different scenarios into an owner’s plan around these various deal structures in real time as the deal unfolds so they can understand the impact it has on their financial future. This gives our clients a higher degree of confidence that they are making the best decision possible for their company, employees, and family. ■

ARTIN SEDIGHAN

PRESIENT AND MANAGING DIRECTOR CAPPELLO GLOBAL, LLC

GREG MARTIN PARTNER AND M&A ADVISOR KEYSTONE BUSINESS ADVISORS

PREPARING THE NEXT GENERATION:: JEREMY LUREY ON FAMILY SUCCESSION

How do you bring your expertise in succession and family success planning to the exit process, and what does your collaboration with other advisors look like to ensure a seamless transition?

My role in the exit planning process focuses on succession planning and family success planning. I do a lot of transition coaching to help retiring business leaders exit gracefully and transition out of the business. My work often centers on identifying the right successor and mentoring their professional development to ensure continuity in leadership.

I also collaborate with a range of advisors, including life insurance experts for keyman policies, wealth management teams, business valuation experts, CPAs, corporate counsel, and trust and estate attorneys. Having all these experts by our side is essential to supporting the family throughout the process.

At what stages of the exit planning journey do you typically engage with business owners, and how does your approach differ between long-term preparation and crisis situations? I typically get involved at two distinct points— either early on or in crisis mode. It’s very common for the rising generations to hire me years before the transaction. Sometimes,

we’re five to ten years out, helping to prepare the family leadership for that transition.

On the other hand, I’m often called in during “emergency room” situations. These are cases where the business owner may have experienced an untimely death or unexpected health issue. I’ve had situations where I’m getting the phone call after someone’s demise, and I have to step in six to twelve months before a planned exit. That compressed timeline can make the process much more challenging.

What is the role of family governance in a thoughtful exit plan?

Family governance is absolutely critical to a successful and smooth exit, especially when passing a business down to the next generation. Setting up a clear governance structure is essential to maintaining continuity, making decisions, and preserving the family legacy. It’s the only way to ensure continuity in the family business and guide decision-making.

Family governance often takes the form of a family constitution or charter, which outlines the family’s wants, needs, and vision for the future. This written document sets the foundation for how the family will interact with the business and with each other postexit. It’s vital for making decisions like whether to sell, reinvest, or distribute wealth.

I also rely on tools like family councils, which help the family make decisions about business operations, wealth allocation, and legacy matters. The council typically includes family members involved in business governance, while wealth managers and attorneys serve as trusted advisors but don’t sit on the council itself. Governance is especially important when the business transitions to inactive shareholders—family members who are owners but not involved in day-to-day operations. Without governance, disparities can arise between family members who actively use and spend the wealth and those who don’t.

I often introduce family retreats, committees, and workgroups as opportunities for family members, especially the next generation, to gain leadership experience. These gatherings aren’t just celebratory events; they’re critical moments where key decisions are made about the future of the business or the family’s legacy wealth.

Philanthropy and shared values also play a significant role in governance, especially after a business has been sold and the family is deciding how to handle the resulting liquidity. Are we going to use that money to pay for everyone’s education or buy yachts and sail around the world? Without family governance, those decisions can quickly become chaotic. Governance ensures that decisions align with the family’s core principles and shared goals.

In my experience, family governance extends beyond the business to managing family wealth post-exit. For example, a $100 million estate becomes its own organization, and

without governance, that wealth can quickly dwindle due to mismanagement or spending discrepancies. Family governance ensures the legacy is preserved, and the wealth is managed prudently across generations.

Best practices and lessons learned when it comes to family succession

I always advise families to prepare for a sale as if it’s inevitable, even if the intention is to pass the business down to the next generation. You want to pass down a better business, not something you haven’t touched in years.

Starting the succession planning process early is crucial to avoiding the chaos that often arises without preparation. Engaging potential successors early ensures a smoother transition. This process is such a personal, emotional journey, and family members often have different opinions about their roles, the future of the business, and wealth distribution.

One of the most important lessons I’ve learned is the need for kindness and patience. Be kind, be gracious, and be forgiving. It’s an emotionally charged process, and people need time to adjust and work through their differences. ■

PROFESSIONAL BIO:

JEREMY LUREY, PH.D. PRESIDENT AND

CEO

FAMILY LEGACY 1ST

Dr. Jeremy Lurey is the President & CEO of Family Legacy 1st, a Plus Delta Consulting company. Jeremy is a talented family advisor, executive coach, and business consultant. He enables business owners and CEOs to improve performance and create greater value for their shareholders.

For more than 25 years, he has served clients ranging from families of significant wealth to midmarket companies to Fortune 500 corporations. Jeremy supports family offices and family businesses with the critical leadership and governance practices required to create more sustainable futures. He is passionate about helping established families transition their businesses and transfer their wealth to the next generation, and he excels at supporting both Baby Boomers transitioning into retirement and their Rising Gen successors accepting increased responsibilities.

In addition to his role as a consultant, Jeremy frequently presents at professional conferences and seminars. He regularly delivers keynote addresses at trade association industry events as well as more intimate family office forums. Some of the topics he addresses include family legacy, family governance, Rising Gen leadership development, and business succession planning.

Jeremy lives in Malibu, California. He is a proud husband, father, brother, son, and owner of 2 rescue dogs. Before launching his own coaching and consulting practices Plus Delta Consulting, CHIEFEXECcoach, and Family Legacy 1st, Jeremy worked at both PricewaterhouseCoopers and Andersen Consulting where he served clients of all sizes and across numerous industry sectors.

ESOPs made simple: SHERYL’S STEP-BYSTEP APPROACH TO EMPLOYEE OWNERSHIP

What specific role do you play in the exit planning process, and how do you collaborate with other advisors?

As an ESOP attorney, my role is to guide companies through the complexities of implementing an Employee Stock Ownership Plan (ESOP). I typically collaborate closely with trusted advisors like CPAs and financial advisors to determine whether an ESOP is a suitable exit strategy. My process starts with an “ESOP suitability review,” where I evaluate the company’s financials and census data. Not all companies can be an ESOP, so it’s crucial to carefully assess whether it’s the right fit.

One key factor I discuss with clients is the trade-off between the deferral of capital gains under Section 1042 and the corporate

structure. Section 1042 allows business owners who sell to an ESOP to defer capital gains taxes, but only if the company is structured as a C-Corporation. If a company is an S-Corp, it doesn’t qualify for the 1042 tax deferral, so we need to determine whether converting to a C-Corp before the sale makes sense.

However, this decision comes with additional considerations. Converting to a C-Corp introduces double taxation, where both the corporation and shareholders pay taxes, unlike the single-layer taxation of an S-Corp. Additionally, once a company converts to a C-Corp, there’s a mandatory five-year waiting period before it can revert to S-Corp status. While the tax savings from Section 1042 can be significant, they come with certain restrictions on how the proceeds from the

sale can be reinvested. Under Section 1042, shareholders who sell their stock to an ESOP can defer capital gains taxes, but only if they reinvest the proceeds in qualified replacement property (QRP). This means you can’t just invest in anything you want—the law mandates that you reinvest the proceeds in certain types of assets, specifically domestic operating companies, which limits investment options.

Qualified replacement property generally includes stocks and bonds issued by domestic C-Corporations, but not real estate, mutual funds, or foreign securities. Some clients are surprised to learn that they can’t reinvest in real estate or more diversified global assets, which could impact their liquidity and asset allocation strategies. Additionally, shareholders must hold these qualified replacement assets for as long as they want to defer the capital gains tax. Selling or exchanging these assets prematurely triggers the deferred capital gains tax, creating further complexity in postsale planning. That’s why it’s critical to work with financial advisors who understand how these restrictions might fit—or conflict—with long-term financial goals.

At what point in the exit planning journey do you typically get involved with a business owner?

I am often brought in by trusted advisors of the shareholders—CPAs, fractional CFOs, financial advisors, and other attorneys— when their clients start talking about retiring or selling the company. Sometimes, I get involved at the forefront of the discussions,

but other times, I’m brought in late in the process. In certain situations, we get brought in last minute because business owners explore private equity and realize that key employees, or sometimes almost all employees, may be replaced. At that point, many companies start looking at alternatives like an ESOP to preserve their workforce.

ESOPs are particularly popular in industries such as manufacturing, construction, and engineering—fields that typically have large, diverse workforces. These industries are wellsuited for ESOPs because they can leverage company cash flows to fund the plan while benefiting from significant tax advantages. One of the main points of using an ESOP is that it allows a company to use its cash while being tax-efficient. In these industries, the large employee base allows for greater tax deductions since ESOP contributions are based on overall employee compensation.

However, not all industries are eligible or suitable for ESOPs. Personal service firms— such as law firms, medical practices, and CPA firms—often cannot establish ESOPs due to regulations that restrict ownership of these businesses to licensed professionals. You can’t have ESOP-owned law firms or doctor practices because the practice of law and medicine has to remain with licensed professionals. While there are exceptions, such as some CPA firms that have managed to adopt ESOP structures, they remain rare.

On the other hand, architectural and engineering firms, which also fall under the professional services category, have seen an increasing number of ESOPs in recent

EMPLOYEES ARE ASSETS—THEY’RE THE ONES

RESPONSIBLE

FOR GENERATING THE VALUE THAT OWNERS MONETIZE THROUGH THE SALE.

years. We’re seeing more architectural and engineering firms adopt ESOPs, which reflects a shift in the market. For industries that can’t implement ESOPs, other exit planning strategies, such as private equity sales or family succession, may need to be considered. But for companies in eligible industries with a strong workforce and healthy cash flow, an ESOP can be a powerful tool for both tax efficiency and employee retention.

What is an ESOP, and how can it benefit an owner as an exit option?

An ESOP is a unique retirement plan that allows companies to buy out shareholders using tax-efficient strategies. It is the only retirement plan allowed by Congress to own S-Corporations and reap the benefits of being a non-taxable entity. For S-Corps, the tax advantage lies in the ESOP’s status as a non-taxable entity, allowing the company to operate tax-free when the ESOP holds 100% ownership of the business.

On the other hand, shareholders can benefit through the Section 1042 provision, which allows the deferral of capital gains when they reinvest in qualified replacement properties—though this benefit is currently limited to C-Corps. Additionally, in all ESOP structures, selling shareholders may remain with the company in non-ownership roles,

such as CEO or board member, which ensures stability for the company postsale. The benefits of each tax strategy should be explored early in the process. In certain situations, the seller can sell to a C-Corporation, utilize Section 1042 tax treatment, and make an S-Corporation election after the sale.

What are some best practices and lessons learned when it comes to ESOPs?

Clear communication throughout the ESOP process is crucial, especially because of the emotional and financial complexities involved. I often hold one-on-one discussions with business owners to ensure they fully understand the implications of selling their company to an ESOP. You will no longer have your dividends, and you will no longer have some of the perks you might have had as a shareholder. It’s also essential to recognize that employees should be viewed as assets since they are responsible for generating the value that owners cash out through the sale.

For me, my role is not just technical—it’s also about providing emotional support. Sometimes, it’s just a deal to other people, but for me, it’s much more than that. Business owners have grown their businesses and spent countless hours making them profitable. Selling their business to the

ESOP tends to be emotional for some business owners because they are letting go of something they worked for most of their lives. They are handing it to the next generation of leaders, with the hope that it will continue to thrive and provide for the employees. ■

PROFESSIONAL BIO:

SHERYL BAYANI-ALZONA

ESOP ATTORNEY AND SHAREHOLDER

EMPLOYEE BENEFITS LAW GROUP

As an ESOP attorney, Sheryl focuses on consultation, operations and documentation. She guides companies, shareholders, internal and independent trustees on all aspects of ESOP transactions and compliance.

She brings to her law practice 11 years of experience as a consultant and administrator of ESOPs, pension and 401(k) plans. Sheryl has worked on all phases of an ESOP. From the initial transaction, continued compliance and through plan termination, she has guided clients through them all.

Sheryl helps clients when they are considering a liquidity event, a business succession plan or a plan to share equity with their employees. She guides company management in plan design for mature ESOPs of all kinds.

In the event of inquiries from the Department of Labor and the IRS, she is an excellent line of defense. She coordinates with third party administrators, CPAs and attorneys to efficiently and accurately respond to minimize liability for income and excise taxes, interest and penalties.

Sheryl’s experience and commitment to continuing to learn gives her invaluable insight into what is really going on in the ESOP and employee benefits arena, allowing her to know what works and doesn’t work for other ESOP companies and plan sponsors. She has a knack for explaining complex ESOP and ERISA rules in clear language — as a member of the ESOP Association and the National Center of Employee Ownership (NCEO) she is a frequent speaker.

The Emotional Impact OF TRANSITIONING YOUR BUSINESS

BY DAVID DRESSLER AND TALIA JACQUELINE

About 10 years ago, I was working with Sam who was in his mid-70s and the founder/operator of a specialty manufacturing company in Southern California.

He toyed with the idea of selling the business and I dutifully introduced him to a business broker. While the broker was successful in receiving several offers, Sam consistently turned them down for one reason or another – either the price wasn’t enough, or he didn’t like the terms of the deal. I struggled to understand why he wasn’t able to move forward. After all, his financial plan looked good and he really didn’t need the income from the business to support his retirement. Eventually, the broker became frustrated, and the efforts to sell were halted.

I was dismayed when I received a call from his widow that he had passed away – somewhat unexpectedly. I was saddened that Sam was unable to actualize a liquidity event. She said, “Joe, I always knew Sam was never going to sell… he just couldn’t let go”.

Only then did it become clear to me that the barrier to an exit wasn’t an external reason, it was rooted in Sam’s emotional and psychological attachment to the business.

When business owners prepare to exit, much of the focus tends to land on the financial aspects of the transaction. However, beneath the surface of these financial considerations lies a profound emotional journey owners must also navigate. For many, the process of leaving their business triggers complex feelings about identity, purpose, and their future beyond the company walls. We spoke with David Dressler, Co-Founder of Tender Greens and Leadership Coach Talia Jacqueline to see how they address these emotional challenges as part of a successful exit deal.

For many business owners, selling their company feels like losing a piece of themselves. Studies reveal that 75% of founders experience feelings of loss, confusion, or anxiety after an exit, proving that the real challenge often begins after the ink dries on the deal.

THE EMOTIONAL IMPACT OF EXITING

For many founders, their identity is deeply entwined with the company they’ve built. David Dressler, who scaled Tender Greens from inception to $100 million in revenue and over 1,200 team members, understands firsthand how emotionally challenging it can be to step away.

He explains, “As founders, we’re the embodiment of our company’s culture. Everyone looks to us as way-finders for the company’s vision and mission. Our purpose is to create a prosperous brand, and in doing so, we bring about the prosperity of our team members as well.” This deep sense of responsibility and connection often makes the transition away from the company a daunting experience.

According to David, when founders exit the business, they are often surprised by the void that follows. “We imagine it’s going to be great to have more freedom and disposable time...but what at first feels like an act of magnanimity or higher calling can also quickly become both identity questioning and anxiety-provoking.” The sudden shift from being at the helm of a thriving enterprise to having unstructured time and fewer demands can leave many owners feeling adrift and unneeded.

Talia Jacqueline adds that this emotional upheaval is rooted in basic human needs that business owners have long fulfilled through their work. Referencing Tony Robbins’ six core human needs — certainty, variety, significance, growth, connection, and contribution — Talia notes that the business has typically served as the primary vehicle through which these needs are met. “Because they’ve dedicated such a large part of their life to building the business, all six needs are wrapped up in it. Selling the business changes the way these needs are fulfilled, which can lead to feelings of loss, confusion, and even fear.”

This sense of loss isn’t limited to a professional role; it extends to personal identity. As David puts it, “What happens once the next runner has sprinted off, company in hand, and the founder’s mind begins to decelerate?” It’s common for founders to feel that they’ve been replaced or that their once-powerful voice within the company is no longer needed. “We’ve gone from hero to zero,” David remarks, encapsulating the emotional rollercoaster many experience post-exit.

PREPARING TO HAND OVER THE REIGNS

The decision to exit a business is complicated on many levels. Our experience is that most owners underappreciate the impact the transaction will have on them emotionally and psychologically. By using a thoughtful framework, owners can navigate this process with much greater clarity and confidence.

1 IT STARTS WITH A BETTER MINDSET:

At Morton Wealth, our formula for success is “Better Mindset + Better Strategy = Better Outcome.” For owners, they feel like they are losing something by moving on from the business. Talia agrees and highlights the importance of reframing the concept of “loss” when it comes to the business. “You can’t lose something without gaining something, too,” she explains. While many business owners feel they are losing their identity along with the sale of their company, Talia suggests that they view this as an opportunity to build a new version of themselves. “Selling gives them a blank canvas where they can paint a new version of their identity,” she adds, emphasizing that the business is still a part of them, but it no longer has to be their whole identity. If owners can have a “moving towards” mindset, they will be more willing to finalize the transaction and move to the next phase of their life.

2 AWARENESS: DON’T CONFUSE FINANCIAL SECURITY WITH EMOTIONAL WELL-BEING.

Financial security undoubtedly plays a role in how an owner feels about life after a sale. However, both David and Talia caution against viewing financial stability as a panacea for the emotional challenges that accompany an exit. “Financial security plays a role in the freedom of optionality,” Talia says. “But, it doesn’t equate to emotional or mental security.” David, too, highlights the importance of not conflating financial success with personal fulfillment. “While financial security offers the freedom to explore new opportunities, it doesn’t necessarily provide emotional fulfillment. If owners are not prepared to address the emotional and psychological shifts that come with selling a business, they may find themselves feeling adrift despite their financial success.” He notes that many founders are surprised when the financial windfall doesn’t satisfy their deeper emotional needs, such as the need for significance or the desire to feel connected to a community. Talia stresses the significance of the need to feel needed, which can often be one of the biggest emotional hurdles postsale. “Business owners are used to solving problems every day, and once that’s gone, they may create problems in other areas of their life simply because they’re accustomed to being needed,” she warns. Without careful planning, this loss of significance can lead to frustration and even conflict in personal relationships.

3 RECREATE YOUR IDENTITY BEYOND THE BUSINESS:

David suggests that founders should develop a personal “business plan” for their life after the sale — a life plan that addresses more than just financial goals. “Founders need to envision what they want the major areas of their lives to look like over the next few years and then chart a course to get there,” David advises. This holistic approach helps ensure the founder’s sense of purpose and fulfillment extends beyond the business. Instead of focusing solely on their investment portfolio or retirement plans, founders should also consider areas such as family, health, personal development, and spirituality.

Creating a post-sale personal plan begins with broadening one’s perspective beyond the business. As David advises, founders must envision the next stage of their life holistically. “It’s not simply about their investment portfolio, their golf and travel plans, but taking a more comprehensive look at what the purpose of this next tranche holds for them and those they love.” The personal plan should cover key areas such as health, family, friendships, personal growth, and even spiritual development.

Talia expands on this by introducing the concept of reinvention. Business owners should consider what other areas of their lives have been neglected during the years of growing their company. “What other areas — health, family, travel, charity, community — are calling for their attention?” she asks, encouraging owners to redistribute their focus and energy into those aspects that

may have taken a backseat during their time as business leaders. To support this holistic approach, part of our role as financial advisors is to help clients integrate these qualitative aspects of their life into their financial plans to ensure alignment.

4 DREAM AND WRITE YOUR IDEAL LIFE:

One of the key recommendations from David is for founders to create and write a personal life plan as they exit their business. This plan should mirror the detail and thoroughness of a business plan, but instead of focusing on departments like marketing and operations, it should cover personal domains such as relationships, health, and personal growth.

David draws from his own experience to illustrate this approach. During his transition out of Tender Greens, he crafted a roadmap that outlined his aspirations for the next decade. “I had done it once, stuck to the plan, and created a unicorn of a brand. Why wouldn’t I apply that same discipline to my own second act?”

David’s C.O.R.E. Framework™ is a structured way to approach this planning process. It stands for Context, Objective, Results, and Execution, offering founders a clear roadmap for the next phase of their life. This framework, he explains, “gives a founder a direction forward for the next three, five, or 10 years and a clear path for the next 12 months.”

For those who may resist the idea of another structured plan after years of rigid business schedules, David offers an alternative: “That

unstructured living can be part of the plan. It’s a mindful approach rather than a mindless one. It’s a plan based on purpose and meaning rather than based on not much at all.”

Talia also emphasizes the importance of this personal roadmap, but with a twist. “Sometimes, the personal plan needs to include space — space for recovery and reflection,” she notes. After years of building and running a business, many owners are burnt out and need time to reconnect with themselves and discover what they truly want from this next chapter. She warns that owners who immediately rush into a new venture without taking time for reflection may find themselves replicating the same patterns of stress and overwork they had hoped to leave behind.

FOR MANY, THE PROCESS OF LEAVING THEIR BUSINESS TRIGGERS COMPLEX FEELINGS ABOUT IDENTITY, PURPOSE, AND THEIR FUTURE BEYOND THE COMPANY WALLS.

5 EMBRACE A NEW CHAPTER BEYOND THE BUSINESS: THE NEXT VERSION OF YOU

One of the most common misconceptions about selling a business is that it marks the beginning of retirement. Both David and Talia challenge this notion, suggesting that the post-sale phase is not necessarily about retiring from work, but rather about redefining one’s purpose. “Selling your business does not equal retirement — unless you want it to,” Talia points out. For many founders, the idea of simply stepping away from work can feel stifling or unfulfilling. Instead, owners should view the sale as an opportunity to explore new ventures, passions, or contributions, whether in a new business or in a different capacity.

David reflects on his own post-sale journey: “After exiting, I wasn’t ready to just sit on the sidelines. I knew I wanted to stay engaged, which is why I turned to coaching and helping other leaders navigate their transitions.” He emphasizes that this transition is about shifting roles, not severing ties with work or purpose. “We were, at one time, so extraordinarily thoughtful about the vision for our businesses. Why wouldn’t we be just as discerning about our lives?”

Talia adds that the transition can be an opportunity for founders to reframe their relationship with work and contribution. “Just because you’re no longer running the business day-to-day doesn’t mean you’re no longer part of the business community. You can continue to be a thought leader, a mentor, or even a guide for others going through the same process.”

A ROADMAP TO THE FUTURE

Owners will have a greater life satisfaction if they have taken the time to craft a personal plan for life after the business. Their plan should be a living roadmap that goes beyond a retirement strategy and evolves over time as founders explore new passions, relationships, and roles.

The key to a fulfilling post-sale life is balancing financial security with emotional well-being. By proactively planning for the emotional and psychological shifts that come with exiting a business, owners can ensure that their life after the sale is one of continued growth, purpose, and fulfillment. ■

DAVID DRESSLER

EXECUTIVE COACH + ADVISOR

DRESSLER HOLISTIC ADVISORY

TALIA JACQUELINE CEO VISCERAL

BY IVY DYSON

When I first began this project with Joe and Mike, I knew little about exit planning for business owners. I assumed my role would be limited to marketing— helping spread awareness of the work they do to optimize business sales and transitions. I’d support, wrap up, and move on. But, as I started interviewing key professionals and learning about each step in the process, I quickly realized how much I was absorbing— not just for work, but for my own life. I’ve always believed that timing is everything, and sometimes life has a way of putting us in the right place when we need it most.

In the middle of this project, my 56-year-old father, a lifestyle business owner, suddenly suffered a stroke. He has always been extremely healthy for his age and worked tirelessly since I was six to build his business, often working 12-16 hours a day, six or seven days a week, with minimal support. This was normal, and I always trusted that my dad and his business would be okay. This stroke was a wake-up call that brought his health and our family’s financial future into immediate focus. Thankfully, he received prompt medical attention and made a full recovery, returning to work within six days. But it was also a close call— his doctors warned that even a two-hour delay could have left

PROPER PREPARATION FOR

YOUR BUSINESS SHOULD BE A MARATHON, NOT A SPRINT.

him with severe brain damage or worse. In those first 48 hours after his stroke, as he struggled with speech and memory, I found myself facing the scary unknown of what his health and the future of his business might look like.

The experience was surreal and unsettling. My brother and I stepped in to keep things running, managing payroll, collecting payments, and delegating work to his one employee. Yet it quickly became clear that the business, which relied so heavily on my father’s constant presence, couldn’t sustain itself without him.

It was during these days that the concept of proactive planning became painfully real to me. Like so many business owners, my dad had poured his life into his work, but our family had not taken the necessary steps to prepare for an emergency. While I am lucky to have access to resources and connections to help us plan for my father’s future, I know that so many families lack this awareness or support. This was a vivid reminder of how crucial it is to prepare years in advance, especially in businesses dependent on a single person.

I now truly understand why advisors emphasize early planning. It’s about building a safeguard, a contingency plan that can act as a lifeline in times of unexpected crisis. Proper preparation for your business should be a marathon, not a sprint. When professionals say, “You can never start planning too early,” they are speaking from experience. The time, effort, and energy you invest today will not only help secure your future but will provide peace of mind for your family, knowing that even in the face of life’s uncertainties, you are prepared.

Thank you for taking the time to read this magazine. We hope it serves as a valuable resource for business owners preparing for a future transition. ■

Disclosure: Testimonial were provided by a current employee of Morton Wealth. The employee was not compensated for the testimonial, nor are there material conflicts of interest that would affect the given testimonials. This testimonial may not be representative of the experiences of clients, and do not provide a guarantee of future performance success or similar services.

YOU DID WHAT IT TAKES. SO WILL WE.

As Strategist advisors we are determined to help business owners realize the full potential of their life’s work. We know how hard it is to build a business and are here to partner with you through the process to optimize the sale and support your future goals.

OUTSMART THE TAX HIT: STRATEGIES TO MAXIMIZE THE SALE OF YOUR BUSINESS

Are you a business owner planning to sell your company within the next five years?

Concerned about how much of your hardearned profits will go to taxes? This exclusive event is designed to help you minimize your tax burden, maximize your bottom line, and confidently plan for your business transition.

Join us for an engaging happy hour featuring a panel discussion with three specialists in tax strategy, business transitions, and financial planning. The panel will be moderated by Wealth Advisor Mike Rudow, who will guide the conversation through key strategies to

help business owners reduce the impact of taxes during a sale. Topics will include leveraging 1202 Qualified Small Business Stock (QSBS) to significantly reduce federal capital gains taxes, understanding statespecific tax savings for those considering relocation, and exploring the pros and cons of structuring an installment sale to manage tax liabilities effectively.

UNLOCKING HIDDEN VALUE: STRATEGIES TO MAXIMIZE ROI AND PREPARE YOUR BUSINESS FOR SALE

Thursday, May 8th | 5:00 PM – 7:00 PM

Is your business ready to attract the right buyer and achieve its full potential? For many business owners, their company represents their greatest financial investment, yet the journey to making it market-ready can feel overwhelming. Whether you’re feeling stuck or striving to grow, this event will provide the tools and insights to help you maximize your business’s value and prepare for a successful sale within the next five years.

Through an engaging happy hour and panel discussion moderated by Wealth Advisor Joe Seetoo, we’ll explore practical strategies for increasing enterprise value. From reducing owner dependency and empowering leadership teams to uncovering untapped opportunities in your financials, this session will focus on actionable steps to enhance your business’s appeal to potential buyers.

We’ll also discuss the importance of diversification, from client and vendor relationships to operational processes, as well as ensuring your legal and financial frameworks are up to date. Often-overlooked factors such as storefront location, market positioning, and data insights will be examined to show how they can significantly impact valuation.

This event is designed to inspire business owners who feel tied to their operations and want to take control of their growth. It’s about implementing strategies that make your business thrive independently of you, allowing you to position it as an attractive, high-value opportunity for prospective buyers.

2025 EVENTS

DEAL TETRIS: PIECING TOGETHER THE OPTIMAL STRUCTURE FOR GROWTH AND STABILITY

Thursday, August 7th | 5:00 PM – 7:00 PM

Selling a business is more than just a transaction—it’s a strategic process that requires careful planning and understanding of deal structures to maximize your ROI while achieving stability and growth. Every deal is unique, like fitting together the perfect pieces of a puzzle. This event is designed to demystify deal structures, providing business owners with the insights they need to make informed decisions that align with their financial goals and vision for the future.

Moderated by Wealth Advisor Mike Rudow, the panel will explore essential components of deal structures, including earnouts, rollover equity, and seller notes. You’ll gain

a working knowledge of what these terms mean, the pros and cons of each approach, and how they impact your personal financial planning.

This event will also dive into the cash flow and tax implications of various deal structures, helping you avoid common pitfalls and understand the long-term consequences of your decisions. Whether you’re focused on courting the right buyer or ensuring the financial stability of your business post-sale, this session will provide actionable insights and strategies to navigate the complexities of deal-making with confidence.

BEYOND THE SALE: CREATING IMPACT AND FULFILLMENT IN YOUR SECOND ACT

Thursday, November 6th | 5:00 PM – 7:00 PM

What comes next after selling your business? For many owners, the transition from being the CEO of a thriving enterprise to navigating life post-sale can feel daunting. Without a clear plan, the months following a sale can leave a void—an unfamiliar space where relevance, purpose, and fulfillment need to be redefined. This event is designed to help you envision and shape your second act, creating a life of meaning and satisfaction after stepping away from your business.

Moderated by Wealth Advisor Joe Seetoo, this engaging discussion features insights from a panel of experts who explore

strategies to help you rise like a phoenix and find renewed purpose post-sale. Key topics include preemptive planning to align your post-sale vision with your goals, ideas for creating impact through charitable initiatives or board involvement, and leveraging your expertise as a consultant.

We’ll also provide a practical framework to guide you through this transition, helping you answer critical questions about how you want to spend your time, make an impact, and replace your income in retirement. By the end of the session, you’ll walk away with actionable steps to approach this new phase with confidence and clarity.