7 May 2026

Is Rollover Equity the Right Move for Your Exit Strategy?
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Is Rollover Equity the Right Move for Your Exit Strategy?

By Jeff DeGarmo|2026-05-06T22:43:32+00:00May 7th, 2026|Categories: Selling a Business|Tags: Deal Structure, exit planning, private equity, Rollover Equity|

Is Rollover Equity the Right Move for Your Exit Strategy?

When you design your exit strategy, you may assume the goal is to receive a single, massive check at closing. However, in 2026, many of the most successful deals involve “rolling” a portion of your ownership into the new company. This reinvestment, known as rollover equity, allows you to remain a partner in the business you built while securing partial liquidity today.

The “Second Bite of the Apple”

The primary appeal of rollover equity is the opportunity for a second, often larger, payout down the road. This is frequently called a “second bite of the apple.”

Imagine you sell your company to a private equity firm. You take 75% of your value in cash now and “roll” the remaining 25% into the new entity. If that firm grows the business and sells it again in five years at a much higher valuation, your 25% stake could eventually be worth more than the original 75% you took at the start.

The Strategic Benefits of Rollover Equity

Beyond the potential for a massive payout, a rollover serves several key functions in a modern exit strategy:

Alignment with the Buyer: It signals to the buyer that you believe in the company’s future. This builds trust and can often lead to a higher overall valuation.
Tax Deferral: In many cases, you do not pay capital gains taxes on the portion of the equity you roll until the second sale occurs. This keeps more of your capital working for you.
Bridge the Valuation Gap: If you and the buyer disagree on the current price, a rollover allows you to “bet on yourself” and capture that extra value later.

The Risks You Must Consider

While the upside is exciting, rollover equity is not a guarantee. It is a reinvestment, and like any investment, it comes with risks:

Loss of Control: You are no longer the majority owner. The new buyer will make the final decisions on strategy, hiring, and the eventual timing of the second exit.
Illiquidity: Your money is “locked up.” You generally cannot sell your rolled shares until the buyer decides it is time for the entire company to be sold again.
Dilution: If the new company needs to raise more capital later, your percentage of ownership could be reduced unless you have specific legal protections.

Negotiating Your Terms

If rollover equity is part of your exit strategy, the “fine print” matters more than the percentage. You must understand the “Capital Stack.” Are you getting “Common Units” (which get paid last) or “Preferred Units” (which get paid first)?

You should also negotiate “Tag-Along” rights, which ensure that if the majority owner sells their stake, you have the right to sell yours on the same terms.

So, what is the right choice?

Rollover equity is perfect for owners who aren’t ready to fully retire and want to participate in the “rocket ship” growth that a professional buyer can provide.

Are you trying to weigh the pros and cons of an equity rollover in your current deal? I can help you analyze the buyer’s track record and the potential “second bite” to ensure your exit strategy leads to the best possible outcome. Contact me today for a confidential deal-structure review.

Is Rollover Equity the Right Move for Your Exit Strategy?

The Roadmap to a Successful Exit: 7 Steps to Selling Your Business

By Jeff DeGarmo|2026-04-24T19:59:35+00:00April 23rd, 2026|Categories: Scaling a Business, Selling a Business|Tags: Business Valuation, Deal Structure, exit planning, M&A Process|

The Roadmap to a Successful Exit: 7 Steps to Selling Your Business

A successful business exit strategy requires more than just finding a buyer. It demands a structured approach to ensure you receive the highest possible value. Many owners rush the process and leave money on the table. By following a standard professional roadmap, you can navigate the complexities of the market with confidence.

Step 1: Discovery & Strategic Alignment

First, you must determine what your business is worth. A professional valuation analyzes your financials, market position, and growth potential. This step aligns your expectations with current market realities. It is the foundation of any strong business exit strategy.

Step 2: Valuation & Scenario Modeling

Next, you must gather all vital documentation. This includes three years of financial statements, tax returns, and equipment lists. You should also identify and fix any “value leaks” in your operations. A clean, organized business attracts higher-quality buyers.

Step 3: Preparation & Packaging

Confidentiality is critical when selling. You do not want employees, customers, or competitors to know the business is for sale prematurely. Professional advisors use “blind profiles” to generate interest. This protects your brand while reaching a global pool of qualified buyers.

Step 4: Marketing & Buyer Targeting

Not every interested party is a fit. You must vet buyers for financial capability and industry experience. Once a buyer passes screening, you can hold initial “chemistry” meetings. These discussions ensure the buyer’s goals align with your legacy.

Step 5: Negotiation & Offer Structuring

When a buyer is serious, they submit a Letter of Intent. This document outlines the purchase price and deal structure. Your business exit strategy should focus on terms, not just the price. This includes seller financing, earnouts, and transition periods.

Step 6: Diligence & Execution Management

Due diligence is the most intense part of the sale. The buyer will verify every detail of your business. They will inspect contracts, financial records, and legal standing. Staying organized during this phase prevents the deal from collapsing.

Step 7: Closing and the Transition Period

Finally, legal counsel prepares the definitive purchase agreement. Once both parties sign, funds are transferred, and the sale is official. Most deals include a transition period. During this time, you help the new owner learn the ropes to ensure long-term success.

So, what is the right choice?

Following a structured process reduces stress and increases your final payout. Jumping steps leads to errors and lower offers.

Are you ready to begin your journey toward a successful exit? I can help you build a customized roadmap that prioritizes your goals and maximizes your value. Reach out today to schedule your confidential valuation and take the first step toward your next chapter.

The Roadmap to a Successful Exit: 7 Steps to Selling Your Business

How to Protect Your Cash at Closing

By Jeff DeGarmo|2026-04-03T19:33:12+00:00April 9th, 2026|Categories: Buying a Business, Selling a Business|Tags: Deal Structure, exit planning, M&A Negotiations, Working Capital|

How to Protect Your Cash at Closing

You have agreed on a price. The due diligence is done. You are 72 hours away from the wire transfer—and suddenly, the deal is on life support. The culprit? Working Capital. In the world of M&A, working capital is often the “war zone” of the final hour. To a seller, it feels like the buyer is trying to shave money off the price. To a buyer, it’s about ensuring the business has enough “fuel” to run on Day 1. If you want to succeed in maximizing sale value, you must address this early.

What is Working Capital? (The “Gas in the Tank” Analogy)

Think of your business as a car you are selling. The purchase price covers the car itself, but the buyer expects there to be enough gas in the tank to drive it home.

In business terms, Working Capital = Current Assets (Cash, Inventory, Accounts Receivable) minus Current Liabilities (Accounts Payable, Accrued Expenses).

The buyer needs this “operational fuel” to pay employees and suppliers before the first new invoices are collected. If you “drain the tank” by collecting every penny of your Accounts Receivable (AR) right before you hand over the keys, the buyer has to inject their own cash immediately. They will rightfully demand a price reduction to compensate for that.

Establishing “The Peg”

To prevent a fight, both parties must agree on “The Peg.” This is a target dollar amount of working capital the seller agrees to leave in the business at closing.

Because most businesses are seasonal, we don’t just look at yesterday’s balance sheet. Instead, we typically use a 12-month or 24-month rolling average to find a “normalized” number.

Common Conflict Zones to Watch For

Excess Cash: Usually, cash is “excluded.” The seller keeps the cash in the bank, but they must leave enough behind to cover the immediate bills. Anything above the required operating cash is yours to take as proceeds.
Accounts Receivable (AR): This is the biggest friction point. If the “Peg” requires $100k in assets and you only have $80k in AR at closing, you must leave $20k in cash to make up the difference.
The Gift Card & Deposit Trap: If you have collected $50,000 in customer deposits or gift cards, that is “unearned revenue.” You have the cash, but the buyer has the obligation to do the work. Usually, you have to leave that cash behind so the buyer can fulfill those orders.

The 90-Day “True-Up”

No matter how hard you prepare, the numbers on closing day are often estimates. That is why a standard exit strategy includes a “90-Day True-Up.”

Three months after the sale, the buyer and seller sit down to look at the actual numbers. If the AR you left behind turned out to be “bad debt” that couldn’t be collected, the price is adjusted downward. If you left more value than required, the buyer writes you a check for the difference.

Why You Must Address This in the LOI

The biggest mistake is leaving working capital “for the lawyers to handle later.” By the time the lawyers get involved, emotions are high and the deal is fragile.

A professional deal should define the working capital target and the exact formula used to calculate it directly in the Letter of Intent (LOI). When everyone knows the rules of the game from the start, there is no “war”—just a math equation.

So, what is the right choice?

Clean up your accounting at least a year before you sell. Accrual-based accounting makes these calculations transparent and leaves very little room for a buyer to manipulate the numbers to their advantage.

Are you worried that a “Working Capital War” might cost you thousands at the closing table? I can help you calculate your “Peg” now and build a defensive strategy to protect your proceeds. Contact me today for a confidential review of your balance sheet before you sign an LOI.

Photo by Joel Timothy on Unsplash