When Dr Connor Robertson begins Episode 5 — Using Tax in the Sale, he cuts straight to what many entrepreneurs fear but seldom question: what happens to your money after the deal? It’s not enough to negotiate price or structure; your financial outcome depends heavily on the tax architecture that governs the deal. In this episode, Dr Connor strips away the mystery around tax in M&A, shares frameworks he’s used with real clients, and reveals how you can turn tax into a lever rather than a liability.
He opens by admitting this: early in his own ventures, he neglected the tax side of exits. Deals felt “successful” on the surface, but after taxes and legal fees, the yield was disappointing. That’s when he committed to mastering deal structure so that the after-tax take-home aligns with what you envisioned. The episode is built to help founders and acquirers think about tax not as a necessary evil, but as a force multiplier.
Foundations: Types of Sale Structures & Their Tax Implications
Dr Connor starts by distinguishing between asset sales, stock sales, and mergers, and how each carries unique tax exposures.
- Asset Sales: The acquirer buys specific assets and liabilities; sellers often recognize gains at ordinary income rates on goodwill or intangible assets.
- Stock Sales: Buyers take on the company’s entire equity; sellers generally benefit from capital gains treatment (if structured properly).
- Merger / Reorganization: Sometimes a hybrid or tax-deferred structure can apply when merging entities under IRS guidelines.
He emphasizes that there is no one-size-fits-all. The optimal path depends on ownership structure, liabilities, depreciation, state taxes, and how clean your books are. He references authoritative guides like the IRS code on Section 179 and depreciation rules. For deeper reference, he points listeners to IRS.gov’s section on depreciation and amortization, and to tax thought leadership in Harvard Business Review on tax-efficient exits.
He walks through a scenario: a founder has built a service company with heavy equipment and leasehold improvements. In an asset sale, much of that value gets recaptured and taxed at higher rates. But with clever depreciation recapture planning, or depreciation stacking, that liability can be softened. He also mentions Section 179 (allowing accelerated deduction of certain assets) and bonus depreciation as tools, when used carefully, to reduce the recognized gain.
Framework: The Tax Optimization Triad
Dr Connor offers a practical framework called the Tax Optimization Triad—three levers you can adjust in deals:
- Allocation Strategy: How the purchase price is allocated among tangible vs intangible assets. This affects what portion is taxed at capital gains vs ordinary rates.
- Depreciation Recapture Planning: If the buyer is allowed to deduct certain expenses, how do you manage recapture so you don’t end up paying back with interest?
- Entity & Residency Strategy: Choosing jurisdiction, pass-through vs C-corp, and how seller residency or state tax rules impact net proceeds.
He shows how small adjustments in allocation (for example, attributing more to goodwill vs hard assets) can change your effective tax rate by several percentage points. Over a multi-million dollar deal, that difference can be six- or seven-figure losses or gains.
Throughout, he emphasizes the importance of early tax modeling in the negotiation process. Don’t wait until closing to consult a tax attorney. Engage CPAs, tax counsel, and deal analysts from day one. The tax model should run in parallel with business valuation, not after the fact.
Real-World Case: Tax Strategy in Action
To ground the theory, Dr Connor shares a client example (names anonymized). The client had built a SaaS business and was preparing to sell. The buyers proposed an asset sale to minimize their liability. The client, instead of accepting the default, pushed for a stock sale + earn-out structure and negotiated depreciation recapture thresholds.
By structuring half the deal as a contingent earn-out, the client effectively deferred a portion of recognition and spread tax liability over the years. They also allocated more of the purchase price to goodwill and customer lists (which qualify for capital gains) rather than equipment (which might be recaptured). The outcome: the seller walked away with significantly more in pocket than the headline number suggested. That outcome was possible because they ran multiple tax models side-by-side and walked into negotiations with clear downside scenarios.
Dr Connor uses this example to stress that tax structuring should not erode the business logic of the deal. If your negotiation is entirely driven by tax, you may sacrifice business value. The goal is to balance business goals with tax efficiency.
Common Mistakes & Pitfalls
No episode on taxes is complete without cautionary tales. Dr Connor outlines frequent errors he sees:
- Ignoring state & local taxes. Federal optimization is irrelevant if the state levies a heavy exit tax.
- Poor financial cleanliness. Untidy books, unaccounted liabilities, messy depreciation schedules — all provide ammunition to the buyer or tax authorities.
- Unfriendly holdbacks & escrows. Delayed payments or performance-based holdbacks often carry tax traps if not modeled properly.
- Skipping due diligence on tax basis. Not investigating prior losses, depreciation basis, or prior asset allocations can lead to nasty surprises.
He recommends using tax due diligence checklists, standard in M&A firms, and aligning financial, legal, and tax teams early. He also cites Deloitte’s guides on M&A tax risks and KPMG white papers on exit tax structuring for founders. Those external links strengthen perception and give the reader deeper resources.
Tactical Steps You Can Use Now
Before the closing, Dr Connor gives listeners a tactical checklist to get started:
- Run exit tax models at 3 different sale prices. (Base, stretch, aspirational)
- Engage a tax attorney or CPA to validate your allocation approach.
- Frame earn-out or deferred payments strategically to shift the timing of tax liability.
- Negotiate tax gross-up clauses when the buyer imposes recapture or indemnity risk on you.
- Document asset valuations and depreciation schedules meticulously — historical detail matters.
- Stay abreast of recent changes in tax law (e.g., depreciation rules, Section 179, bonus depreciation updates).
He encourages entrepreneurs to run the tax simulation thousands of times—play with numbers, test edge cases, stress-test liability under negotiation pressure.
How This Ties Into the Prospecting Show Series
This tax episode might feel a bit specialized, but Dr Connor connects it to the broader theme of value delivery and deal architecture that has run through The Prospecting Show. In prior episodes:
- Episode 1 (Networks & Trade Shows): created pipelines of opportunity
- Episode 2 (Cold Outreach Rhythms): built reach via disciplined contact
- Episode 3 (Referral Pipeline): harnessed trust and client advocacy
- Episode 4 (Follow-Up Mastery): sustained momentum and conversation
Now Episode 5 closes the loop: how to exit or transfer value efficiently once you’ve built all those systems. Prospecting isn’t just getting leads — it’s building value you can monetize effectively. This tax strategy episode is the “harvest” side of the cycle.