EPISODE 240.

If you want confidence in your outcome, don’t just ask “What’s my valuation?” Ask “What’s my take-home, when do I receive it, and what could reduce it?”

Other Episodes in this Series

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Buy, sell, or grow your tech-enabled services firm with Revenue Rocket.

EPISODE TRANSCRIPT

MIKE:Hello, and welcome to this week’s Shoot the Moon Podcast, broadcasting live and direct from Revenue Rocket corporate headquarters in Bloomington, Minnesota. Let me try it again. Hello, and welcome to this week’s Shoot the Moon Podcast, broadcasting live and direct from Revenue Rocket world headquarters in Bloomington, Minnesota. With me today are my partners, Ryan Barnett and Matt Lockhart. Welcome, guys.

MATT:Great to be here, as always. We’re starting to get toward that time of year where we’re shutting things down—although it’s exciting that we’ve got a couple of deals closing before the end of the year. And for those of you who may be new to the podcast, we are your M&A advisors for tech-enabled services companies worldwide. Ryan leads the parade here and has come up with a heck of a series. Ryan, I think it’s going great. How are you?

RYAN:Hey—thanks, Matt. And Mike, thanks for being on here today. Today we’re on our fourth episode of a Master Class series focused on IT services executives and the potential of selling your firm. As you look toward 2026 and what that could mean for you—maybe monetizing your life’s work, the biggest asset you have, and taking that next step—we want to help you think about it in a way that gets you the most value and gives you reassurance about the future.

So far we’ve covered how to get ready, how to organize your business, and valuations—what to expect and how valuation works. Today is a continuation of that: once you have a valuation in mind and you understand your enterprise value, the next question many CEOs ask is, “What’s my take-home?” Today we want to look at the biggest factors that impact what actually goes into your pocket after a transaction.

Mike, let’s start with you. When you think about these deals, enterprise value is that headline number—why do sellers fixate on it, and why is it risky to use enterprise value as the goalpost versus net proceeds?

MIKE:Great question. Enterprise value does not translate equally into what you put in your bank account. It’s critically important to consider price and terms—what portion of the proceeds is cash, what portion might be an earnout or seller note, what portion goes to tax, and what portion goes to fees (tax, legal, and M&A). Those fees shouldn’t be underestimated.

You also have to reconcile debt. Most transactions are structured as cash-free, debt-free transactions. What that means is you may be able to harvest excess working capital (not all working capital, but excess working capital), but you also have to pay off debt. All of those items effectively come out of enterprise value—especially on the liability side—offset somewhat by assets you can harvest from the balance sheet at the time you sell. The key point is: enterprise value is not the number you ultimately put in your bank account.

RYAN:Thanks, Mike—that’s a great setup. The rest of the conversation really focuses on those areas. Just because the top line looks great doesn’t mean the bottom line is the same.

Matt—when you think about gross proceeds versus net proceeds, can you simplify what that means so a CEO can understand it?

MATT:Sure. Gross proceeds is essentially that enterprise value number Mike is referring to—the headline number on an LOI. Let’s use a simple example: an enterprise value of $20 million (it could be $50 million or $100 million, but we’ll use $20 million). That’s what you see in big bold letters.

Then you need to understand there will be reductions. Often, the largest reduction is taxes—what will be paid to Uncle Sam. Another big category is debt: because most deals are cash-free, debt-free, if you’re carrying debt above and beyond the assets in the business, that debt typically needs to be paid off—often as a reduction from enterprise value at close (or it can be cleared beforehand).

You also have potential working capital adjustments. Market practice is that a certain amount of working capital will be left in the business so the buyer can operate the going concern. Then you have transaction fees—M&A advisor fees, legal fees, accounting and tax support, and so on. Those reductions take you from enterprise value to net proceeds—your take-home amount.

MIKE:That helped, Matt.

RYAN:If I heard you right, there are a few major categories: debt payoff, advisor fees, working capital adjustments, and taxes. Mike—are there other things someone should account for when they look at the deal overall and the types of fees they might expect?

MIKE:Yes. There may be advisor fees you haven’t thought about that are important. Competent tax counsel is critical—especially if you’re rolling over equity, have earnouts, or are deferring tax on portions of the proceeds. A good tax advisor can help structure the deal in the most tax-efficient way, including timing—there can be nuance at year-end that affects tax treatment.

You also may want a financial advisor. For many owners, this is the biggest single asset on their personal financial statement. When you receive proceeds, you need to decide what you’ll do with them—how to invest them and how to build the greatest return. There are also tax considerations tied to working capital harvests if those amounts are material. Thinking ahead about how to optimize take-home—taxes, debt, and working capital—matters, and it’s important to engage these advisors early so you’re prepared.

RYAN:Sticking with deal structure for a moment—you mentioned terms earlier. Are there other things that might defer payment? Specifically, I’m thinking about holdbacks for reps and warranties. Sometimes the take-home isn’t necessarily less—it just happens later. Can you expand on that?

MIKE:It’s super important to understand this from the buyer’s perspective. In the purchase agreement, you’ll make representations and warranties about the fitness of the business—your books, contracts, vendors, and so on. The buyer wants protection in case something shows up after close that contradicts what was represented.

Because of that, buyers often want a holdback, setoff, or escrow—money that’s held back to fortify against a breach in the contract. As long as you’re truthful, honest, and transparent, this generally never comes into play and you get the holdback.

There are typically two ways to fortify reps and warranties. One is reps and warranties insurance, which is often used on deals over roughly $10 million in enterprise value and can scale much higher. If there’s a claim, the insurer pays. Both parties usually share in the premium.

A more cost-effective approach is an escrow holdback. That usually means waiting six months to a year for some of your money—but in most cases, you get it, assuming everything was represented accurately and honestly.

RYAN:That really helps. The big message is: buyers may include things that defer payment. You may see reps and warranties holdbacks, or terms like a seller note that pays interest on the money you’re effectively lending.

So, the major categories we’ve covered are: debt payoff, M&A advisor, legal advisor, accounting and tax advisory, possibly a quality of earnings report, a working capital true-up, taxes, and reps and warranties holdbacks. And taxes can vary significantly depending on where you live—so having the right tax strategy is critical.

Matt—switching gears: these fees are important. Can you explain why advisor fees can actually increase net proceeds, not just reduce them?

MATT:Absolutely. Advisors—what we do, plus legal and tax advisors—help ensure you achieve the best deal possible. From our role, we aim to find the best strategic fit: cultural, strategic, and financial alignment with your goals. Strategic fit drives value and drives price.

Competition matters too. A strong and credible M&A advisor runs a process where multiple buyers see that fit and put their best foot forward. In most cases, we’re able to achieve an enterprise value that exceeds the fees paid to us—and often exceeds the total fees paid to all advisors.

Likewise, a credible M&A attorney reduces ongoing risk and helps structure the purchase agreement to maximize your return. And working early with an experienced tax advisor—aligned with legal counsel and the M&A process—is absolutely critical to structuring the deal appropriately. Done correctly, the use of advisors pays for itself by increasing price and improving structure.

RYAN:Well said. Next topic: once an LOI sets enterprise value, what should owners be cautious about that might reduce enterprise value during the process? For example, a quality of earnings report might question EBITDA add-backs. How does enterprise value start to decrease? And post-transaction—are there things like true-ups, or items that could be dealt with months or even years after the transaction?

MIKE:Good question. It’s not uncommon—particularly for financial buyers—to do a quality of earnings analysis. Think of it like a financial audit. They’ll review your books with scrutiny, including EBITDA add-backs like owner add-backs and other adjustments. There’s generally negotiation about what is or isn’t an appropriate add-back.

Sometimes there are simply errors in the financials—timing problems or issues in how transactions were posted—that put profit in question. As the buyer’s auditor works through the quality of earnings and potentially moves EBITDA down, that can impact value because many buyers price the deal off a multiple of EBITDA. They may try to retrade the deal or negotiate a lower price.

That’s why having a competent advisor matters—someone who can do diligence defense and defend your EBITDA against that audit scrutiny. In our firm, that means another auditor has already reviewed the numbers so we know what’s defensible. If you haven’t done that work before engaging a buyer, and you have “chinks in the armor,” you can create momentum toward reducing profit and weakening your position.

This is one reason so many unrepresented deals don’t get done. Statistically, if you’re approached by a buyer, only about 1% of those deals actually close. A common failure point is that the pre-work hasn’t been done, the financials haven’t been stress-tested, and the buyer starts picking things apart—while you still have a business to run and aren’t prepared to fully defend your EBITDA.

RYAN:Mike, Matt—this is extremely helpful for sellers. Matt, I’ll turn it back to you for any closing thoughts or anything we may have missed.

MATT:Another great topic. For people who’ve been through this before, it might feel like the basics—but we work with a lot of founder-led businesses who haven’t been through the process. And it’s easy to get sidetracked if you’re not properly prepared.

That shiny headline number isn’t necessarily the take-home number. Many people understand taxes in concept, but not the intricacies. Often they don’t understand working capital, working capital adjustments, or how buyers will use diligence to try to reduce purchase price.

The last thing I’d add is: preparation matters—mentally and emotionally—because it ties directly to what your actual take-home can be. Start early with your M&A advisor, start early enough with your tax advisor, and then at the appropriate time, start early enough with your legal advisor. We’re looking forward to having many more of these conversations in the year to come.

MIKE:With that, we’ll tie a ribbon on it for this week’s Shoot the Moon Podcast. I encourage you all to tune in next week for the next class in the Master Class on preparing your business for sale. We look forward to you tuning in—make it a great week.