What You Actually Keep When You Sell a $10 Million Business

A $10 million price is the number on the letter of intent. What you keep is the cash that hits your account after debt, fees, a working-capital true-up, money held back, and the part of the price that is not cash — and then tax on the gain, which is a different calculation. Owners who plan a life on the headline are planning on money that never arrives in one wire.

The short answer: on a $10 million sale, cash at closing is often several million dollars less than $10 million before you even compute tax. Company debt is paid off. Advisors are paid. The buyer expects a normal level of working capital left behind. An escrow or holdback sits until claims expire. A seller note and any rollover equity are promises, not cash. Tax depends on your basis, whether the deal is a stock sale or an asset sale, and your state. A high-income seller of long-term stock can face a top federal rate of 20 percent plus the 3.8 percent net investment income tax. An asset sale can put part of the gain in ordinary income. Those are categories. They are not your return.

At Bridge Point Business Brokers, we build this page before an owner accepts a headline. Start with a confidential business valuation or M&A advisory. How the buyer assembles the check is the companion piece: how buyers finance a $10 million acquisition when SBA cannot cover it.

This article is not tax, legal, or lending advice. Basis, entity type, depreciation recapture, state conformity, and what an escrow may be used for are facts for your CPA and your counsel. Confirm them before you sign a letter of intent. The illustration later in this article uses round numbers so the stack is visible. It is not a quote for your company.

The Headline Is Enterprise Value, Not a Paycheck

Most letters in this range quote a price on a cash-free, debt-free basis, with a working-capital peg. That sentence does four jobs.

You deliver the company without the buyer assuming your bank debt. Debt is paid at closing out of the price, or you pay it and the price is calculated as if you had. Either way, the debt is not money you take home.

You do not keep every dollar of cash in the operating account unless the letter says excess cash is yours. A normal level of receivables, inventory, and payables stays. That normal level is the peg. If the business is short of the peg at closing, the price goes down. If it is over, you may be paid for the excess. The peg is negotiated. It is not “whatever is in the account on Friday.”

The $10 million is the value of the business as a going concern under those rules. It is not “$10 million plus the cash, and the buyer pays off the line.” Read the definition before you celebrate the number. Our valuation guide is how the headline gets built. This article is what happens to it on the settlement statement.

What Comes Off Before You See Cash

Walk the price in the order a closing statement actually uses. Each line is either cash you do not receive, or cash you receive later, or cash you receive only if something else happens.

Debt and debt-like items

The line of credit, the equipment notes, the unpaid taxes, and sometimes deferred revenue or a customer deposit are settled at closing. A $1.5 million loan on a $10 million price is $1.5 million that never reaches you. Credit-card balances in the company’s name and unpaid payroll taxes belong on this list too. A buyer will also look for debt-like items a seller forgot: unpaid bonuses, a lease you personally guaranteed that must be released, and a large customer deposit already spent. If it must be paid for the buyer to own a clean company, it comes out of the price.

Advisor fees and deal costs

A success fee, a lawyer, a quality-of-earnings review, and a payoff to a lender’s counsel do not come out of a separate pocket in the sky. They are paid at closing from proceeds, or you owe them the next day. On a $10 million sale the professional stack is often a few hundred thousand dollars, sometimes more if the process was long or the structure was a sponsor deal. Model the fee letter you already signed. Do not discover the percentage when the wire is short. The broker and M&A advisor guide is who does which job. The fee is still your cost.

Working capital versus the peg

Suppose the letter says the business will be delivered with $800,000 of working capital, measured the way the accountant defined it. Closing working capital is $550,000. The price drops by $250,000. The opposite is also true: deliver more than the peg, within the rules, and the price can rise. Owners lose this argument when they pull cash out in the last ninety days and call it a distribution. The peg catches it. A buyer who also wants a quality of earnings will tie that number to the same monthly file.

Escrow and holdbacks

A slice of the price sits with an escrow agent, or is held back, to cover indemnities: a tax claim, a customer lawsuit, a working-capital dispute that is not resolved on day one. You do not keep that money on closing day. You may receive it months later if no claim is paid. You may receive less. The percent is negotiated. There is no national rule that it is always 10 percent or always 5. What matters is the amount, how long it is held, and what can be drawn. Treat it as delayed cash with a risk of loss, not as money already spent on a boat.

The seller note

A note is a loan you make to the buyer. It increases the headline and decreases the wire. On a $10 million deal it is common because a single SBA 7(a) loan stops at $5 million, so the rest of the check is equity, a bank, and often you. You are usually behind the bank. If the company misses, you wait. Compare a $10 million price with a $1.5 million note to an all-cash price that is lower. The all-cash price can leave you with more money this year. The seller-financing guide is the risk. The financing guide is why the note shows up at this size.

Earn-outs

An earn-out is paid only if the company hits a target after you have sold it. It is not cash at closing. It is not cash if the buyer changes the way revenue is counted. Tie it to a definition you can audit, for a period you can live with. The earn-out note is the structure. Until it is paid, it is not what you keep.

Rollover equity

If you roll 10 percent back into the buyer’s company, that 10 percent is not in the wire. You own a minority piece of a business someone else controls. It can be worth more later. It can be worth nothing if the next sale never happens or your share is diluted. A recap that leaves you in is a different deal from a full exit. Read rollover and the second bite before you treat the rolled dollars as savings. Who you roll with — a sponsor or a strategic buyer — changes control and the second check. That comparison is private equity versus a strategic buyer.

One Illustration, Not Your Closing

Use round numbers only to see the order of operations. This is not a recommended structure and not a tax calculation.

The escrow may come back. The note may be paid over years, with interest, if the company performs and the bank allows it. The rollover is worth whatever the next sale supports. None of those three is the wire on closing day. Tax is still unpaid in this table. If your basis in the stock or the assets is low, the tax on a $10 million economic sale can be a seven-figure check even when the wire was $4.55 million. Do not subtract “about 20 percent of $4.55 million” and call it done. Tax is computed on taxable gain and its character, not on the cash that happened to be wired.

Change any line and the wire moves. No debt, and this illustration is $1.5 million higher. No rollover and no note, and you need a buyer who can fund more cash — which often means a lower headline. That trade is the point of reading the stack before you negotiate.

Tax Is a Second Calculation

Cash at closing and taxable gain are not the same number. Your CPA needs the purchase agreement, the allocation, the entity’s returns, and your basis. The categories below are why two owners with the same $10 million headline keep different amounts.

Stock sale versus asset sale

In a stock sale, you sell the shares. Buyers of a C corporation or an S corporation sometimes prefer assets so they can step up the basis of what they bought. You often prefer stock so more of your gain is capital gain. The price moves with that preference. Our stock versus asset sale guide is the longer version. At $10 million, the tax difference can be larger than the advisor fee. Do not leave it for the week of closing.

In an asset sale, the price is allocated among equipment, inventory, intangibles, and goodwill. Depreciation you took can come back as ordinary income. Goodwill held long enough is generally capital gain. The allocation is negotiated because the buyer’s deduction and your tax move in opposite directions. A number on a letter that ignores allocation is not a net number.

Entity type

A C corporation that sells assets can pay tax at the company and again when the cash is distributed to you. That is the expensive path. A stock sale of C-corporation shares is generally one level of tax to the shareholder, at capital-gains rates if the holding period is met. Some C-corporation stock qualifies as qualified small business stock under section 1202, which can exclude a portion of federal gain if the issuance rules, the holding period, and the dollar caps are met. Most owner-operated companies taxed as S corporations or partnerships are not in that box. Ask the CPA whether any shares qualify. Do not assume a $10 million sale is tax-free.

An S corporation or a partnership is generally taxed once, to the owners, and the character of the gain can flow through. A recent conversion from C to S can leave a built-in-gains tax on the company. Partnerships have their own rules for “hot assets,” which can turn part of a sale into ordinary income. Those are reasons to get the return, not reasons to guess a rate in a spreadsheet you built on a Sunday.

Federal rates, then your state

For a high-income individual, the top federal rate on long-term capital gain is 20 percent. The 3.8 percent net investment income tax can apply on top of that when income is over the statutory thresholds — $200,000 single and $250,000 married filing jointly, figures that are not adjusted for inflation. Together, that is 23.8 percent federal on long-term gain that is subject to both. It is not the tax on every dollar of a $10 million price. Basis comes off. Ordinary income from recapture is taxed at ordinary rates, which reach 37 percent federal before the net investment income tax where it applies. Short-term gain is ordinary, not long-term.

Your state may tax the gain as well. Some states do not. A seller in Texas and a seller in California can look at the same federal headline and keep different amounts. Florida has no state personal income tax. That is not a reason to ignore federal tax, and it is not a reason to describe the market as a Florida sale. The file is the gain and the state where you are taxed.

What tax is not

Tax is not a reason to refuse a stock sale that a buyer will not do, or to accept an asset sale without seeing the allocation. It is a line on the same page as the wire. If the after-tax cash does not fund the life you described, the headline is the wrong target. Change the structure, the price, or the decision to sell. Do not discover the gap after the exclusivity period has started. Diligence is when the buyer’s accountant will force the allocation into the open. Have your CPA in that room.

Real Estate and Cash Left in the Business

If the $10 million includes the building, part of the price may be real estate, with its own allocation and, for depreciated property, unrecaptured gain taxed at up to 25 percent federal rather than the 20 percent long-term rate. If you keep the building and lease it to the buyer, the $10 million might be the company only, and the rent is a separate negotiation. The rent is income after the sale. It is not proceeds of the sale. Say which deal you are in before you add the building’s value to the wire in your head.

Cash the buyer requires you to leave is working capital, already in the peg. Cash above the peg can be yours if the letter says so. A distribution you take the week before closing often comes back as a peg shortfall. Plan distributions with the peg, not against it.

What “Keep” Means If You Stay

Cash at closing is not the whole economic outcome if you roll equity, carry a note, or stay on a salary. Salary after closing is wages. It is not a second purchase price. A consulting agreement the buyer needs so they can deduct it may be recharacterized if it is really more purchase price. Your counsel and CPA should read those agreements together.

A note that pays for five years is part of what you keep only to the extent it is paid. Discount it for time and for the chance the company cannot pay you behind the bank. An earn-out discounted the same way will not equal the maximum in the letter. Owners who add the maximum earn-out, the face of the note, and the rollover at today’s imagined exit are adding three hopes to one wire. Report the wire, then a range for the rest.

Above this size, the stack shifts again. A sale that crosses $20 million is more often a sponsor, senior debt, and rollover, and SBA is usually gone. That piece is what changes when a sale crosses $20 million. The question is the same: what is cash, what is delayed, and what is a bet.

How to Read an Offer This Week

Put five numbers next to any headline before you counter.

1. Cash at closing, after debt, fees, and the peg, and before your personal tax.
2. The face of the note, the rate, the term, and whether the bank is ahead of you.
3. Escrow: the amount, the release dates, and what can be claimed.
4. Rollover and earn-out, each written as “not cash unless.”
5. A tax estimate from your CPA using the actual entity and a draft allocation, not a single percentage times $10 million.

If the buyer cannot fund the cash line, the headline is a conversation about a larger note or a lower price, not a victory. If the tax line consumes the life you wanted, fix the structure while you still have leverage. The sale-prep roadmap is the calendar for getting the books, the debt list, and the peg definition ready before a buyer writes the letter. A confidential process still matters. The confidential sale guide is how you keep employees and customers from pricing the deal for you in the hallway.

Talk With Bridge Point

If you are looking at a price near $10 million and you want the wire, the note, and the tax estimate on one page before you grant exclusivity, Bridge Point Business Brokers can help you value the company and compare structures a buyer can actually fund. Start with a valuation, M&A advisory, or contact us. Call (352) 515-0226.