By the time a letter of intent is signed, the tax outcome of a sale is largely fixed. Entity form, ownership structure, the character of the assets, the holding period, the state of residence: each was decided long before, most often without a transaction in mind.
Tax friction is a structural cost
The Tax Friction Index™ treats tax not as an event but as a property of the structure. Two companies with identical revenue and identical buyers can produce materially different net proceeds because one was built with the exit in view and the other was built to get through the next year.
What can still be changed with three to five years
- Entity conversion or restructuring, where the current form creates a second layer of tax at exit
- Ownership arrangements that shift future appreciation to the right holders before it occurs
- Compensation and distribution design that separates operating income from enterprise value
- Qualification for exclusions and deferrals that require a holding period to begin now
- Alignment between the estate plan and the business structure, so a transfer is not taxed twice
Exit tax planning is not about the year of the sale. It is about the five years before it.
Why this belongs in a diagnostic, not a product
Every item above touches valuation, liquidity, debt and succession. Treating it as a standalone tax exercise produces solutions that are technically correct and structurally wrong. ES Partners examines tax friction as one of five exposures, and only after the others are understood.