How to Sell Your Business for the Most Money Possible — Potentially Tax Free
This letter is about one path that can help you sell your business for the most money possible, potentially tax free.
DUFFY Realty started in 2002. Beyond a long history in Atlanta and licensing across the country, DUFFY became highly successful— launching me to the #1 spot for sold residential properties four years in a row. The model works, and the public loves it. So then what? You build something great… and then you want to retire and travel as your kids head off to college.
Like many business owners, we started thinking about exit options. When we met with a business broker (only one, to be fair), we weren’t impressed. They talked about competitors in our book (with proper disclosures, of course) and implied that a competitor would likely be the buyer. That made me cringe. No way. We set it aside. I’d rather close, I thought.
Time passed. In August of 2015, Frank and I were at a business seminar taking notes like crazy, and the speaker mentioned an ESOP.
What is that? An ESOP is an exit option—often discussed as a way to make the company tax free and allow the selling shareholder to potentially receive proceeds tax free. It can also act like a “pension plan on steroids” for employees, increasing loyalty, retention, and production. We were stunned—in the best way. It hit us like a bottle rocket to the brain.
ESOP stands for Employee Stock Ownership Plan.
How We Built It
The journey began—and fair warning: when Frank and I get on a mission, we ride a rocket. We’re relentless about getting the best advice for the best value. We hate overpaying for anything, but we also know you must build a competent structure.
First, we were told about a law firm the speaker mentioned. We later learned (after a lot of questions) that some of what we were told wasn’t accurate. We were suspicious anyway because the fee seemed excessive—so high it would take too long to break even.
In classic Frank-and-Rhonda fashion, we started asking everyone we knew about this “strange thing” ESOP. After a few days and many calls, we found an accountant highly recommended for ESOP accounting. Our own accountant declined and told us it was highly specialized.
Then we found an attorney who had previously worked at the high-priced ESOP law firm before joining another firm. Bingo. Most importantly, he charged about 1/6th of the fee. Now we were cooking with grease.
We took the questions we’d asked the other firm (plus a few we made up) and confirmed he was legit. Timeline? The first firm said 7 months. This attorney said 2 months. Wow.
Next, we needed an evaluation company to value the business. Done. But then we asked: what if we hired a consultant who could help us increase the value before the evaluation? We did—and we gained $1.5 million more in the evaluation. We were winning.
Next: a trustee. We did additional research and ended up using the trustee recommended by the first law firm.
Then we needed someone to handle the paperwork and the yearly employee calculations. We hired that support as well.
I dreaded the work to do the ESOP, but in hindsight, the work of gathering documents and facts—plus the annual requirements—mostly comes down to staying organized. The ESOP itself has been straightforward.
The workhorses that drive DUFFY have stayed at DUFFY to reap the rewards now—and the bigger reward when the owner-financed seller note is fully paid.
What Happened Next
Now to what you really want to know: yes, we have taken millions of dollars tax free, and we sold our business for more money. DUFFY does not pay corporate taxes, which also makes DUFFY more profitable.
Frank and I still run DUFFY with the help of vested employees, and we’ve been on our Freedom Tour through 2020 and 2021. We are paid a salary, and we receive the interest on the seller owner-financed note.
Above all, the ESOP was the best thing we have ever done in business.
Back to that business broker: their suggested selling price was about 40% of what our ESOP evaluation came in at— and that was before the tax advantages.
Need Help?
Let’s talk. We’ve lived through the ESOP since October 2015, and we can help get you on the right track. We have the resources and we know what to do. Most importantly, this is a game changer for business owners.
IRS Reference About ESOPs:
https://www.irs.gov/retirement-plans/employee-stock-ownership-plans-esops