Settling or Selling the Business
A Net Proceeds Framework for What You Retain

The sale price is not the proceeds.

A generous offer can leave an owner poorer than a workable settlement once lien payoffs, transaction expenses, taxes, and surviving obligations are subtracted, while continuing the operation after settling one account can preserve losses rather than value.

The Price Is Not the Proceeds

The offer letter arrives with a number circled, sometimes in ink. The price, if we are being precise, is a rumor until the closing statement confirms it, and the closing statement speaks a different language of adjustments, prorations, and holdbacks.

Separate cash paid at closing from every contingent amount. An earnout, seller financing, or working capital adjustment may never arrive in the form the headline suggests, and a creditor requiring payment at closing will not wait for later funds to materialize (the sample on this desk favors asset sales, though no one should mistake a desk for a dataset). Obtain estimates of transaction expenses and advice about taxes before treating any figure as available for debt resolution.

Brokers sell prices. Closings deliver remainders.

Security Interests After a Sale

A sale does not strip liens by itself.

The New York rule on security interests after disposition provides that a security interest continues in collateral despite sale, lease, or other disposition unless the secured party authorized the transfer free and clear, and it attaches to identifiable proceeds, subject to the statutory exceptions. Seldom does the first offer survive contact with the lien search.

The buyer structures the purchase as an asset deal in order to leave liabilities behind (the buyer, who will insist the price assumed clear title while the agreement leaves the lien where it was, leaving that contradiction for counsel to resolve). Whether the buyer discounted for the lien or failed to find it is a question the closing file leaves open.

A clean sale therefore needs payoff letters, written authorization for any free and clear transfer, releases of guarantees where obtainable, and termination of the financing statements through the New York termination statement rules rather than by assumption. The agreement should ensure each payoff produces a written release. Value leaks from a transaction the way heat leaves a house with the windows painted shut, without a sound and through every joint, and the leak always favors the party that documented less.

The Settlement Alternative

Before committing to a sale, obtain the other number. Delancey Street can assess whether an MCA settlement fits within the operation finances. It is a settlement company rather than a law firm advising on the sale agreement.

A first review compares the proposed payment with the cash the business generates after necessary expenses. Whether the operation can survive the payments is a question the cash flow answers better than any adviser. Ask the provider to ensure the offer uses funds available on the stated dates, and have counsel confirm that guarantees, collateral, and any proceedings are addressed in the proposed resolution.

Settlement and sale are not mutually exclusive. A negotiated payoff may form part of a transaction, but the documents must coordinate the payment, the release, and the closing conditions as one mechanism rather than three hopes.

A Net Proceeds Model

Three months after closing, the only figures that matter are the ones on the settlement statements. When counsel builds the comparison, after the offer letter has been admired and the lien search has been completed, the model sets the sale proceeds net of every payoff, tax, fee, and retained liability beside the settlement cost plus the value of the enterprise the owner keeps, because what the seller keeps, or owes, after the wire clears is the entire question.

Take a labeled hypothetical rather than anyone promise. A $400,000 price with $310,000 in lien payoffs, $25,000 in transaction costs, and a surviving guarantee suit produces a different remainder than a $90,000 settlement that leaves the business operating, and the gaudy multiple in the offer letter describes neither outcome.

• List every lien payoff, tax estimate, broker fee, and retained obligation with its document source.
• Value contingent buyer payments at what counsel says they are worth, not at face amount.
• Price the settlement side with provider charges, legal scope, and financing costs included.
• Confirm the tax treatment of forgiven amounts under the IRS treatment of canceled debt, with bankruptcy and insolvency exclusions tested against the owner facts, so far as the documents disclose.

An asset sale, an equity transfer, and a closure followed by piecemeal disposition allocate liabilities on different terms, and successor exposure stays in counsel territory. Resist the urge to deduct the settlement quote from the sale price and call the difference profit. Do not promise the buyer clear title in conversation, even casually, before counsel confirms what the filings show. Review and analyze each input before the model is trusted.

The Decision After the Math

A sale ends the business. It does not end the debts. I have watched owners celebrate a sale that left them poorer than a settlement would have. The champagne was premature, and I said nothing at the time.

Earnouts, in my experience, are where optimism goes to be audited. Counsel will read the security agreements, trace the filing history, and draft a closing checklist that ties each payoff to a release and each release to a recording. Simply list every lien, every payoff, and every retained obligation on one page, and negotiate and document the releases before the wire moves rather than after.

A closing discussion with Delancey Street can test the settlement side of the model while independent counsel tests the sale side. The price is not the proceeds. What remains after every claim against the proceeds has been satisfied is the only number the owner ever owned.