Net Proceeds is what a seller actually takes home from an M&A deal after every deduction is applied to the headline price. The gap between "we sold for $20M" and "I put $11M in the bank" is the net-proceeds calculation — and most sellers underestimate the spread.
The deduction stack
- Debt repayment — every dollar of debt at close is repaid first
- Banker fees — 1–2% of deal value, sometimes higher on smaller deals
- Legal fees — $50K–$300K typical for mid-market deal
- Accounting / QofE fees — $30K–$150K if seller-side QofE
- Working capital true-up — if delivered NWC below target
- Holdback / escrow — 5–15% held for 12-24 months
- Tax — the biggest single deduction, 20–40% of pre-tax net
Example
Headline purchase price: $20M. Debt repaid: $2M. Banker fees: $250K. Legal: $120K. QofE: $60K. WC true-up: $0 (matched target). Holdback: $1.5M (released over 18 months). Net pre-tax at close: $20M − $2M − $0.43M − $1.5M = $16.07M. Federal + state tax on capital gain (assume 30% effective): $4.82M. Net cash at close: $11.25M. Plus the holdback releases later for $1.5M more pre-tax = roughly $1M post-tax.
The most common mistake
Not planning entity structure 18-24 months pre-sale. C-corp vs S-corp vs LLC has dramatic tax implications at exit. Some structures qualify for Qualified Small Business Stock (QSBS) treatment — up to $10M of gain tax-free. Other structures stack double taxation. Talk to a CFO + tax attorney well before the sale process starts.
Frequently Asked Questions
Why is headline not what I take home?
Debt, taxes, fees, true-up, holdback all come out first.
What's negotiable?
Banker fees, legal cap, WC target, holdback size, R&W insurance. NOT debt or tax.
How do I maximize net proceeds?
Entity structure planning, debt reduction, accounting cleanup, then negotiation.
Related Terms
- What is exit multiple?
- What is QofE?
- What is WC true-up?
- What is a holdback?
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Planning a sale? Talk to a CFO 18 months ahead, not 18 days.