A handshake on price is the start of the hard part, not the end of it. The execution phase — from the letter of intent to funding — is where a buyer turns the seller's representations into verified fact, and where an unprepared seller watches a clean deal slowly come apart. This piece maps the phase: how verification works, how the data room and price allocation shape the outcome, and why the discipline that prevents retrading is built before the LOI is ever signed. The tax mechanics here are market practice, not advice — a seller's own counsel runs the specific numbers.
§ 01 · LOI to fundingThe execution timeline.
After price and structure are agreed, the deal runs a 60-to-120-day gauntlet of overlapping diligence workstreams.
| Phase | Timing | What the buyer does |
|---|---|---|
| Pre-diligence | Day 0–5 | Finalize LOI, engage counsel |
| Financial diligence | Day 5–30 | Reconcile tax returns, verify EBITDA adjustments and commissions |
| Operational diligence | Day 15–50 | Interview staff, verify carriers, IT, compliance |
| Legal / regulatory | Day 20–60 | Verify licenses, litigation, contracts |
| Price allocation | Day 45–90 | Negotiate the asset-category split |
| Final closing | Day 60–120 | Final documents, funding |
§ 02 · Forensic verificationAnd the retrading threat.
Buyers no longer take representations on trust — they independently verify the income statement (tax returns reconciled to the books, commissions sample-checked against carrier statements), the balance sheet (receivable aging and collectibility), client retention (verifiable lists, not assertions), carrier relationships, and key-person dependency. The risk this surfaces is retrading: a buyer who discovers undisclosed liabilities, overstated retention, or operational chaos demands a 10–20% price cut or walks.
Retrading is preventable, and the prevention is counterintuitive — the seller volunteers the difficult information before the LOI. "Ten clients declined renewal," "two producers may leave in Q2," "one account is 8% of revenue": disclosed up front, the buyer prices it in and cannot later claim a material adverse change. Discovered post-LOI, the same facts become grounds to renegotiate. A seller who arrives with an organized documentation package — three years of returns, a verified client schedule, carrier agreements, documented procedures, compliance records — turns a 120-day grind into a 60-day close.
Every surprise a buyer finds is a discount they ask for. Every surprise the seller disclosed first is a number already in the price. Proactive transparency isn't a virtue — it's the cheapest retrading insurance there is.
§ 03 · The virtual data roomKilling deal drag.
The virtual data room — a secure, access-controlled repository for every deal document — has replaced email-and-PDF diligence. Its value is the elimination of deal drag: the chaotic loop of "send all the invoices," fifty PDFs, clarifying emails, "actually, reorganize that by carrier," repeat. A data room centralizes documents in an indexed folder structure, controls who sees what and when (financials early, client detail later), watermarks every view, logs all access, and runs Q&A in one place so buyers self-serve instead of pinging the seller.
The seller's job is to stand it up two to three weeks before the LOI is expected — organized, indexed, complete, with sensitive personal data redacted — then respond to the Q&A queue within 24 hours through closing. The common failures are predictable: dumping too much and burying the signal, poor folder organization, slow responses that breed buyer anxiety, and gaps that read as red flags. Discipline here is the difference between momentum and a stall.
§ 04 · Purchase-price allocationThe six-figure tax line.
In an asset sale, the total price is divided across asset categories — and the categories are taxed very differently. The split is reported on the IRS asset-allocation statement (Form 8594), which both parties must file identically. The seller generally wants weight in goodwill and customer relationships (capital-gain treatment); the buyer wants weight in the non-compete and equipment (deductible or depreciable). The gap is real money.
| Asset category | Typical split | Seller tax character |
|---|---|---|
| Goodwill | 40–60% | Long-term capital gain |
| Customer relationships | 5–15% | Long-term capital gain |
| Non-compete | 10–25% | Ordinary income |
| Equipment / fixed assets | 5–10% | Depreciation recapture |
| Accounts receivable | 0–5% | Ordinary income |
On a $10M deal, a goodwill-heavy allocation can net materially more than a non-compete-heavy one — a six-figure swing on an identical price. The allocation must still reflect fair market value (an 80% goodwill split with no supporting appraisal invites challenge), so the seller's leverage is preparation: a tax advisor modeling the alternatives, an independent appraisal of the client list, and a proposed allocation put on the table early rather than ceded to the buyer's first draft. As with every tax point here, the modeling belongs to the seller's advisor. The companion transaction-types piece covers why the asset-vs-stock choice drives the allocation in the first place.
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Terminology on this shelf
- Retrading
- A buyer's renegotiation of price (usually downward) after the LOI, based on something surfaced in diligence.
- Forensic verification
- Independent buyer verification of every material financial and operational claim, rather than reliance on seller representations.
- Virtual data room (VDR)
- A secure, access-controlled repository that centralizes deal documents and Q&A, eliminating email-based deal drag.
- Deal drag
- Delay and inefficiency in diligence caused by poor document organization or slow responses.
- Purchase-price allocation (PPA)
- The division of the price across asset categories for tax purposes, reported on IRS Form 8594.
- Material adverse change
- A significant negative discovery post-LOI that can give a buyer legal grounds to renegotiate or walk.