Lessons from My First Exit

13 pointsposted 2 days ago
by mtlynch
(mtlynch.io)

7 Comments

ezekg

2 days ago

Thanks for sharing, as always. 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? Did your final take home amount meet your expectations? Anything you would optimize for future exits?

mtlynch

2 days ago

Thanks, Zeke!

>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/

mtlynch

2 days ago

Author here.

Happy to answer take any feedback and answer any questions about this post.

yen223

2 days ago

If you could go back in time, knowing what you know now, would you still have quit your Google job to pursue this business venture?

mtlynch

2 days ago

Yep, still happy with the decision. A lot of my comp at Google was stock, so I would have made a lot from the stock price movement over the last six years, and I'm a bit envious of that, but still yes.

I do still love the independence of working for myself, so I'm happy to have had the last six years of that rather than feeling unfulfilled at Google.

With everything shifting around AI, and big tech could be doing massive dev layoffs in the next five years. Given that risk, I'm happy to have experience as a founder rather than a dev who could be laid off immediately in a down market.

elphinstone

a day ago

Very thorough and well written account of a difficult process.

abhi968611

2 days ago

Documenting procedures and processes will save a lot of time and effort in the future. Overcommunication is needed.