Lessons from My First Exit

>I was surprised you didn't touch on taxes. In the past, the main thing that kept me from selling any business was taxes -- I'd make more if I just kept it running over n years in maintenance mode. After all is said and done, a boostrapped seller seems to get significantly less than sticker price, especially after income and capital gains tax, since LLCs don't qualify for QSBS. How did you navigate that?

I haven't filed 2024 taxes yet, so I don't know the final result, but my accountant expects that taxes on the sale will be low or zero.

Most of TinyPilot's software development expenses were from developers who live overseas, so there was a huge amount of accrued R&D expenses that I wasn't allowed to claim as an expense in the year it happened because of Section 174.[0]

I thought I'd have to wait for those expenses to amortize over the next 15 years, but the surprise from my accountant was that I can realize those expenses fully in 2024 as part of shutting down the company (that is, my LLC, which is mostly asset-less after the sale). So, hopefully that's what it looks like when I file next year.

>Did your final take home amount meet your expectations?

Yeah, I was happy with the price.

When I started the process, I told friends I'd be happy with $600k, okay with $500k, and I'd probably begrudgingly sell for as little as $300k if it was between that and juggling the business with being a new father. So, landing on $600k felt pretty good.

I expected to lose about 20% in closing costs between legal and broker fees, so that was about what I expected.

>Anything you would optimize for future exits?

In terms of taxes, I can't think of anything. Because of Section 174, I'd hire for every other role before I hire developers and do the dev work myself until then because the tax treatment is so bad now relative to other roles, but that's not really a closing thing.

[0] https://blog.pragmaticengineer.com/section-174/