Before the Sale: What the Lawyer and the Wealth Manager See
A conversation between Daniel Novela, Novela Law Firm, P.A., and Jordan Niefeld, CPA, CFP®, CEPA, Vice President, Investments with AGS Wealth Management Group of Raymond James and a specialist in business-owner exit planning.
Most business owners will sell a company once in their lives. The buyer across the table has usually done it many times. That imbalance is why the work that determines the outcome happens in the two to three years before a sale, not in the weeks around closing.
I sat down with Jordan Niefeld, a wealth manager and Certified Exit Planning Advisor at AGS Wealth Management Group of Raymond James, to look at that preparation from both sides of the table. He asked me three questions from the wealth manager’s seat. I asked him three from the lawyer’s. The answers arrive at the same conclusion from two different directions: by the time the letter of intent is signed, most of the outcome has already been decided.
The Wealth Manager Asks the Lawyer
Jordan Niefeld asks. Daniel Novela answers.
Q1: What legal and operational preparations should a business owner make two to three years before a sale, and which actions truly increase business value versus simply improving organization and readiness?
Start with ownership. Confirm that the cap table, the stock ledger, and reality all agree, because a disputed 2 percent found during diligence can stall a closing for months.
Then, the contracts that produce the revenue: buyers pay for revenue they can keep, so signed agreements with top customers, on reasonable terms and without unusual termination rights, move valuation directly. Lock in key people with employment agreements, confidentiality obligations, and assignments of what they created. And confirm the company owns its intellectual property, including work done by contractors years ago.
Those four move price. The rest, including clean minute books, current licenses, and organized files, is readiness rather than value, but it sets the tone. A buyer who finds order in the first folder reads everything after it with confidence. Two years is enough time to fix almost anything. Two months is not.
Q2: Many business owners don’t engage legal counsel until after signing the Letter of Intent. When should an attorney ideally become part of the advisory team alongside the investment banker, CPA, and wealth manager, and what are the potential costs or risks of bringing them in too late?
Before the letter of intent is signed, not after. Most of an LOI is not binding, but it sets the economics and the rules for everything that follows.
Once you sign, you typically grant the buyer exclusivity: you have given up your alternatives while the buyer keeps all of theirs. Leverage peaks the day before the LOI is signed and declines every day after. If the price structure, the treatment of working capital, and the scope of exclusivity are not addressed in the LOI, the seller negotiates them later from a weaker position, and the buyer knows it.
I have seen sellers locked into ninety-day exclusivity with a vague price formula, watching the number drift down with every diligence finding and unable to talk to anyone else. An hour of legal review before signing an LOI is worth more than a hundred hours after.
We covered this ground in our Letters of Intent conversation earlier this year, and the lesson has not changed.
Q3: Business owners often focus on the headline purchase price, but how much of that amount is actually guaranteed? Which deal terms ultimately determine how much money the seller takes home?
The headline price is an opening statement, not a result. A portion typically sits in escrow for a year or more against indemnity claims. Another portion may be an earnout, payable only if the business hits targets after closing, under new ownership, and with decisions the seller no longer makes.
The working capital adjustment moves the number again at closing, and if the target was set carelessly in the LOI, it moves in the buyer’s favor. The indemnities then determine how much can be clawed back and for how long. A seller can sign at one number and, eighteen months later, have received meaningfully less without anyone breaching anything.
This is where the attorney and the wealth manager work the same problem from two sides. I negotiate how much of the price is fixed, how much is contingent, and how long the seller’s money remains at risk. The wealth manager plans around what is actually certain.
Plan around the guaranteed number. Treat everything above it as upside.
The Lawyer Asks the Wealth Manager
Daniel Novela asks. Jordan Niefeld answers.
Q1: An owner tells you they want to sell in two to three years. What is the critical path you walk them through, and where do most owners start too late?
When an owner tells me they are considering a sale in two to three years, I encourage them to follow a critical path rather than prepare for a transaction at the last minute.
The first step is determining “your number,” the after-tax proceeds needed to accomplish your personal, family, and financial goals. From there, we work backward to the valuation the business needs to achieve, working closely with the right investment banking partner to assess what buyers are actually willing to pay.
Because of our relationships with experienced valuation professionals, we are able to provide complimentary informal business valuations for companies of all sizes and across a wide range of industries. These valuations help owners better understand the current value of their business and serve as a valuable starting point for strategic planning, value enhancement initiatives, and future exit planning.
We then conduct a value enhancement assessment to increase enterprise value, improve earnings quality, strengthen management, and address issues buyers may discount during due diligence. Each industry has different value levers, and knowing which to pull ahead of time is critical.
At the same time, we coordinate estate planning and tax mitigation, since the most effective strategies must be implemented before a transaction is imminent. Many of the most valuable planning techniques require time to execute properly and cannot be implemented once a sale is already in motion.
The biggest mistake owners make is waiting until they receive a letter of intent. By then, many planning opportunities have disappeared, and they are left optimizing the deal they have rather than the outcome they could have achieved.
Q2: Owners often view tax planning as something the accountant handles at closing. In real dollar terms, where does pre-sale tax planning actually move the needle, and what has to be in place well before a letter of intent is signed?
Owners often assume tax planning happens at closing, but by then, many of the highest-impact strategies are no longer available. The biggest opportunities come 12 to 24 months before a sale, when there is still time to structure ownership and coordinate the right strategy.
Pre-sale planning can materially increase after-tax proceeds through entity restructuring, moving business interests from high-tax-state jurisdictions such as New York, New Jersey, and California to states without individual income tax, such as Florida and Texas, gifting interests to trusts or family members, charitable planning, and qualified small business stock planning under Section 1202, where applicable.
Strategies like GRATs, SLATs, IDGTs, FLPs, and BDITs may also help reduce future estate tax. For many business owners, these decisions can preserve hundreds of thousands, or even millions, of dollars that would otherwise be lost to taxes.
With sufficient advance planning, a wealth advisor can also take a proactive approach by implementing tax-loss harvesting strategies well before a transaction occurs. By strategically realizing capital losses over time, those losses may be used to offset capital gains recognized on the sale of the business, potentially reducing the owner’s overall tax liability.
The earlier planning begins, the greater the opportunity to accumulate losses and improve the owner’s after-tax outcome when the transaction is completed.
The key is a coordinated team of a wealth advisor, CPA, estate attorney, and M&A attorney working together before a letter of intent is signed. Once an LOI is executed, many planning opportunities become limited or unavailable because the IRS may view the transaction as already in motion.
The earlier planning begins, the more flexibility an owner has to reduce taxes, protect wealth, and maximize net proceeds.
Q3: You talk about the importance of a deal team. Who should be on it, when should each member come in, and what goes wrong when an owner tries to run the sale alone?
A successful business exit is rarely the work of one advisor. We believe an experienced wealth advisor who has been through a business recapitalization or full exit is the right place to start.
Only after truly understanding the owner’s goals and net number can a durable plan be built, and that advisor can then pull in the right professional deal team for the situation.
The team should include a wealth advisor to coordinate pre-sale planning, tax optimization, and risk mitigation, and manage post-sale wealth while acting as a quarterback throughout the deal cycle; an investment banker to position the company and create a competitive process; a CPA to model and implement tax strategies; an estate planning attorney to establish trusts and ownership structures before a transaction is imminent; and an M&A attorney to negotiate the purchase agreement and protect the owner’s legal interests.
Ideally, this team is assembled 12 to 24 months before going to market, not after a letter of intent is signed. Owners who run the process alone often leave value on the table, lose negotiating leverage, overlook tax-saving opportunities, and become distracted from operating the business.
Buyers are experienced and have teams of advisors. Owners should have the same advantage.
About
Daniel Novela is the founder of Novela Law Firm, P.A., a Miami transactional firm focused exclusively on mergers and acquisitions, private placements, corporate structuring, art law, and significant personal assets. He is an adjunct professor at the University of Miami School of Law, where he teaches M&A Transactional Skills.
Jordan Niefeld, CPA, CFP®, CEPA, is Vice President, Investments with AGS Wealth Management Group of Raymond James. He works with business owners on exit planning, pre-sale wealth strategy, and post-sale wealth management. He can be reached at Jordan.niefeld@raymondjames.com or 305-682-2434.
Disclosures
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Raymond James is not affiliated with and does not endorse the opinions or services of any of the companies mentioned.