Working With a Tax Advisor Before You Sign the LOI
Most founders treat the Letter of Intent (LOI) as the starting line.
In reality, it’s often the point where your flexibility starts to disappear.
By the time you’re reviewing an LOI, key elements of the deal are already taking shape—price, structure, terms, expectations. And while many founders focus heavily on negotiating valuation at this stage, they overlook something just as important:
How the deal is going to be taxed.
This is where working with a tax advisor early—before you sign the LOI—can make a meaningful difference.
Because once you sign, you’re not just agreeing to a direction.
You’re narrowing your options.
The LOI Sets the Framework—Not Just the Price
Many founders think of the LOI as a high-level document.
Non-binding. Preliminary. Subject to change.
And while that’s technically true, in practice, it carries weight.
The LOI often outlines:
- Deal structure (stock vs. asset sale)
- Payment terms (cash, earn-outs, seller financing)
- Key assumptions around the transaction
These elements directly influence how the deal will be taxed.
Once they’re agreed upon, changing them later becomes difficult.
Not impossible—but difficult.
Because expectations are set.
Momentum is established.
And renegotiating structure mid-process can create friction—or even jeopardize the deal.
Why Timing Matters More Than Most Founders Realize
The biggest mistake I see is founders bringing in tax advisors too late.
They wait until:
- Diligence is underway
- Documents are being drafted
- Or worse—right before closing
At that point, you’re reacting.
Not planning.
Your ability to restructure the deal is limited. Your leverage is reduced. And your options are constrained by what’s already been agreed to.
Working with a tax advisor before signing the LOI allows you to:
- Evaluate different structures
- Model after-tax outcomes
- Identify risks early
- Negotiate from a position of clarity
That’s a completely different position than trying to fix things later.
Understanding the Real Outcome—Not Just the Headline Number
A $20 million offer can look very different depending on how it’s structured.
For example:
- Is it a stock sale or asset sale?
- How is the purchase price allocated?
- Are there earn-outs or deferred payments?
- What portion is taxed as capital gains vs. ordinary income?
Without tax analysis, you’re evaluating the deal based on gross value.
But what matters is net proceeds.
A slightly lower offer with a more efficient tax structure can result in more money in your pocket.
This is where a tax advisor adds immediate value.
They help you see the deal through the lens that actually matters.
Structuring the Deal Before It’s Locked In
One of the most important roles of a tax advisor early in the process is helping shape deal structure.
Because structure drives tax outcomes.
Key considerations include:
- Stock vs. asset sale
- Elections like 338(h)(10)
- Treatment of goodwill and other assets
- Timing of payments
- Use of installment structures
These decisions are not just technical—they’re strategic.
And they’re best addressed before the LOI is finalized, not after.
Identifying Red Flags Early
Another benefit of early tax involvement is risk identification.
A tax advisor can flag issues such as:
- Potential double taxation scenarios
- State tax exposure
- Entity structure limitations
- Eligibility (or lack thereof) for tax advantages like QSBS
- Risks tied to earn-outs or deferred payments
Catching these early allows you to adjust expectations—or negotiate terms accordingly.
Waiting until later often means dealing with these issues under pressure.
Strengthening Your Negotiating Position
Information creates leverage.
When you understand the tax implications of different deal structures, you can negotiate more effectively.
For example:
- If a buyer pushes for an asset sale, you can quantify the tax impact and negotiate a higher purchase price
- If an election benefits the buyer, you can request concessions in return
- If certain structures create risk, you can push back with confidence
Without that insight, you’re negotiating in the dark.
With it, you’re negotiating strategically.
Aligning Your Advisory Team
M&A transactions involve multiple advisors:
- M&A advisor
- Legal counsel
- Tax advisor
When these groups are aligned early, the process runs more smoothly.
When they’re not, problems emerge.
For example:
- Legal may draft documents based on one structure
- Tax may recommend a different approach
- The founder is left reconciling conflicting advice
Bringing a tax advisor in before the LOI ensures alignment from the beginning.
At Legacy Advisors (https://legacyadvisors.io/), we emphasize this coordination early in the process to avoid unnecessary friction later.
Avoiding Costly Mid-Process Changes
Changing deal structure after signing an LOI is possible—but it’s rarely clean.
It can lead to:
- Delays
- Renegotiation
- Increased legal and advisory costs
- Erosion of trust with the buyer
In some cases, it can even cause deals to fall apart.
Early tax planning reduces the likelihood of these disruptions.
It allows you to enter the process with a clear, aligned strategy.
The Role of Scenario Modeling
One of the most practical contributions a tax advisor can make early is scenario modeling.
This involves analyzing:
- Different deal structures
- Various allocation scenarios
- Timing of payments
- State and federal tax implications
The goal is simple:
Understand how different paths impact your net outcome.
This allows you to make informed decisions—not reactive ones.
Learning From Patterns
On the Legacy Advisors Podcast (https://legacyadvisors.io/podcast), we’ve talked about how many deal challenges aren’t unique—they’re patterns.
Tax issues are a perfect example.
The founders who run into problems are often the ones who:
- Engaged advisors too late
- Focused only on price
- Assumed structure could be adjusted later
The ones who navigate the process successfully take a different approach.
They plan early.
They ask the right questions.
And they build their strategy before they’re under pressure.
This Isn’t Just About Minimizing Taxes
It’s important to be clear about something.
The goal isn’t to avoid taxes entirely.
That’s not realistic.
The goal is to:
- Understand the implications
- Make informed decisions
- Optimize outcomes within the rules
Working with a tax advisor early helps you do exactly that.
A Broader Perspective on Exit Planning
This idea shows up repeatedly in The Entrepreneur’s Exit Playbook (https://amzn.to/40ppRpT):
Your exit doesn’t start when you go to market.
It starts much earlier.
The decisions you make along the way—structure, planning, advisory alignment—shape the outcome.
Waiting until the LOI stage to think about taxes is like trying to redesign a house after the foundation is poured.
You can make adjustments.
But your options are limited.
Final Thoughts
The LOI feels like a milestone.
And it is.
But it’s also a point of commitment.
A point where flexibility begins to narrow.
Working with a tax advisor before you sign doesn’t slow the process down.
It strengthens it.
It gives you clarity.
It gives you leverage.
And most importantly, it helps ensure that the deal you agree to is actually the deal you want—after taxes.
If you’re preparing for a sale and want to ensure your strategy is aligned before you enter negotiations, visit https://legacyadvisors.io/
And if you’re looking for a practical framework to think through your exit from a founder’s perspective, The Entrepreneur’s Exit Playbook is a valuable resource: https://amzn.to/40ppRpT
Because in M&A, timing matters.
And when it comes to taxes, earlier is almost always better.
Frequently Asked Questions About Working With a Tax Advisor Before You Sign the LOI
Why is it too late to bring in a tax advisor after signing the LOI?
It’s not impossible—but it’s often too late to make meaningful changes without friction.
By the time an LOI is signed, the framework of the deal is already established. Key elements like structure, payment terms, and expectations are in place. While the LOI may technically be non-binding, it sets the tone and direction for the transaction.
Trying to change structure after this point can lead to delays, renegotiation, or even loss of trust with the buyer. In some cases, it can jeopardize the deal entirely.
Bringing in a tax advisor before signing ensures you’re shaping the deal from the outset—not trying to fix it under pressure later.
What exactly will a tax advisor help me evaluate before signing an LOI?
A tax advisor helps translate the deal into what it actually means for you financially.
Before signing an LOI, they can evaluate:
- Whether the proposed structure (stock vs. asset sale) is optimal
- How proceeds will be taxed (capital gains vs. ordinary income)
- The impact of earn-outs or deferred payments
- Potential state and federal tax exposure
- Opportunities for elections or structuring improvements
They can also model different scenarios, allowing you to compare outcomes across multiple deal structures.
This insight helps you make decisions based on net proceeds—not just headline valuation.
Can working with a tax advisor actually increase the value of my deal?
Yes—indirectly, but meaningfully.
A tax advisor doesn’t increase the purchase price itself, but they can help you maximize what you keep. In many cases, they also strengthen your ability to negotiate.
For example:
- If a buyer prefers a structure that increases your tax burden, you can quantify that impact and negotiate a higher price
- If certain elections benefit the buyer, you can use that as leverage for concessions
- If alternative structures improve your outcome, you can push for those early
The result is often a better net outcome—even if the headline number stays the same.
Do I need a specialized M&A tax advisor, or will my regular CPA work?
It depends on your CPA’s experience with transactions.
Selling a business is very different from ongoing tax compliance. It involves deal structuring, complex tax elections, allocation strategies, and coordination with legal and M&A advisors.
If your CPA has deep experience in M&A transactions, they may be well-equipped to help. But many general CPAs focus primarily on annual filings and may not have the transactional expertise needed for a sale.
In higher-stakes deals, it’s often beneficial to bring in a specialist who understands how these transactions are structured and negotiated.
The goal isn’t just accuracy—it’s optimization.
What’s the biggest mistake founders make when approaching the LOI stage?
The biggest mistake is treating the LOI as a pricing document instead of a structural one.
Founders often focus almost entirely on valuation and overlook how the deal is constructed. But elements like structure, allocation, and payment timing have a direct impact on tax outcomes.
By the time they realize this, they’ve already agreed to terms that limit their flexibility.
The most effective founders approach the LOI differently. They evaluate not just the number, but the full context of the deal—including tax implications.
That shift in mindset often leads to better decisions and stronger outcomes.