For most entrepreneurs, their business represents years — and often decades — of personal investment, risk-taking, and hard work. Whether you’re eyeing retirement, moving on to a new venture, or cashing out for other reasons, how you plan your exit can make the difference between long-term financial independence or financial compromise and instability.
Around 78% of small‑business owners intend to sell their company to fund the majority of their retirement – usually to the tune of 60 – 100% – yet most don’t have a clear strategy to achieve that goal; in fact, about 72% lack an exit plan, and nearly 50% have never funded a formal retirement savings plan.
Here are seven ideas about how to plan your business exit to protect and sustain your wealth into retirement:
1. Start with a Personal Financial Plan:
Only 5% to 10% of owners know the true value of their business, and very few have implemented an estate plan or buy-sell agreement as they approach retirement. Before structuring any business sale, sit down with a wealth manager to understand your current financial situation and give thought to what you want your life to look like post exit. For example:
- Evaluate Your Lifestyle Needs: Determine how much money you need annually to maintain your lifestyle post-exit.
- Get a Formal Business Valuation: Will your business fund your retirement lifestyle ? If not, you should look for a consultant who can help you boost the value of your business.
- Assess Your Current Assets and Liabilities: Consider how your personal assets will change after the sale of your business. Will there be outstanding debts or new liabilities ?
- Run Long-Term Projections: Use financial planning tools or advisors to model different financial scenarios, like market downturns, longevity risks, and significant healthcare costs to assess your ability to maintain your lifestyle.
Key Takeaway: Your exit strategy should support your personal financial goals, which could require that you take steps to proactively optimize the value of your business.
2. Understand Your Exit Options:
Each exit method has different financial implications. For instance:
- A Sale to a Third Party: Offers a clean break and potentially the highest immediate payout but may trigger high taxes.
- A Management or Employee Buyout (MBO/ESOP): Enables continuity, often with favorable tax treatments, but payments may be spread over time.
- A Family Succession: Keeps the business in the family but may involve gifting or complex estate planning.
- An Initial public offering (IPO): Can unlock significant value if it is a feasible alternative.
Key Takeaway: Choose the method that best aligns with your financial and legacy goals.
3. Maximize the Value of Your Business:
A successful exit starts years before the actual transaction.
- Formalize Your Operations: Build – then document – systems, policies, procedures, and controls that don’t rely on you personally.
- Diversify Your Customer Base: Reduce risk in the eyes of a buyer.
- Clean Up Your Financials: Audited and reviewed financials increase credibility and valuation.
- Minimize The Business’ Risks Associated With Your People: Develop a strong management team and hire people who align with your mission, vision, values, and culture.
Key Takeaway: Make your business as attractive and low-risk as possible for a buyer or successor.
4. Structure the Deal Strategically:
The way you structure the transaction can have a significant impact on your financial outcome. For example:
- Asset vs. Stock Sale: An asset sale may benefit the buyer because they would have fewer liabilities, while a stock sale may offer tax advantages to the seller.
- Installments vs. Lump Sum Sale: A lump sum provides immediate liquidity, where installment sales spread income – and the associated tax liability – over time.
- Earn-Outs: Can boost total proceeds but depend on future business performance —so make sure that this exit strategy lines up with your risk tolerance.
Key Takeaway: Work closely with a Certified Business Exit Consultant® (CBEC,) transaction attorney, and/or tax advisor to optimize the structure of the transaction.
5. Mitigate Taxes:
A poorly structured exit can result in avoidable taxes that reduce your nest egg. Consider the following strategies:
- Capital Gains Planning: Favor capital gains treatment over ordinary income when possible.
- Qualified Small Business Stock (QSBS): May exempt some gains from federal taxes, if certain conditions are met. The One Big Beautiful Bill Act (OBBBA) has made this deduction more attractive to shareholders of a QSBS.
- Installment Sales: Spread taxes over time and potentially reduce total liability.
- Trusts and Charitable Strategies: Consider charitable remainder trusts (CRTs) or donor-advised funds (DAFs) to offset taxes while supporting causes you care about.
Key Takeaway: As Alexander Graham Bell once said: “before anything else, preparation is the key to success.” Early tax planning can save millions of dollars in taxes. Don’t wait until an offer is on the table to consider the tax implications of your exit transaction.
6. Reinvest Wisely After the Exit:
After the sale of your business, your focus should shift from building a business to preserving and growing your wealth.
- Diversify Your Wealth: Avoid overconcentration of your wealth by reinvesting your proceeds across multiple asset classes.
- Create A Cash Withdrawal Plan: Plan how and when to draw from your portfolio in a tax-efficient manner and with a focus on capital preservation.
- Work With Your Wealth Planner Into Retirement: Ensure that your post-exit investments align with your risk tolerance and long-term goals.
Key Takeaway: It’s not just about the proceeds from the sale of your business — it’s about what you keep and how you grow it !
7. Plan Your Post-Exit Life:
Your retirement shouldn’t just be about financial security; it should also be about purpose. Key questions include:
- What Will You Spend Your Time on Post-Exit ? Travel, investing, starting another business, grandkids, or focusing on philanthropy ?
- Will You Need Ongoing Income or Want to Preserve Wealth For Heirs ? Does the business have a family office and do you intend to play an active role on the board ?
- How Involved Do You Want to Remain With Your Former Business, If At All ? Have you considered your legacy ? Should you play some role in the business post-exit ?
Key Takeaway: Structuring a fulfilling life post-exit is as important as the financial component.
Final Thoughts:
A successful business exit is not only about the transaction, but also the transition. It requires thoughtful planning, a clear understanding of your financial needs, and an on-going collaboration with seasoned advisors. Begin preparing early (ideally at least 3 to 5 years in advance) to give yourself the best chance of a secure, rewarding next chapter.
Did you like the content in this article ? For more information about business exit and succession planning, the author has posted his entire series of business exit and succession planning articles on the media page of his website at www.greaterprairiebusinessconsulting.com.
About Greater Prairie Business Consulting, Inc.:
Greater Prairie Business Consulting, Inc. is an award-winning, national consulting practice serving entrepreneurs, small to mid-sized privately held and family-owned businesses and middle-market companies of any type with revenues between $1 million and $250 million. The firm helps small, mid-sized, and middle market companies maximize their performance and exit.
Greater Prairie Business Consulting, Inc. can be reached by calling 1-800-828-7585 or e-mailing info@gpbusinesssolutions.com.
About the Author:
James J. Talerico, Jr. is an award-winning author, blogger, speaker, and nationally recognized small to mid-sized (SMB) business expert.
With more than thirty- (30) years of diversified business experience, Jim has a solid track record and an A+ BBB rating helping thousands of business owners across the US and in Canada tackle tough business problems to improve the performance of their organizations.
His client success stories have been highlighted in the Wall St. Journal, Dallas Business Journal, Chicago Daily Herald, and on MSNBC’s Your Business. He was named “Texas Business Consulting CEO of the Year,” by CEO Today Magazine, identified as a “Top 10 Management Consulting Entrepreneur to Watch” by Entrepreneur Magazine, was listed among the “10 Most Visionary Companies to Watch” by The Inc. Magazine, and has also been ranked among the “Top Small Business Consultants” followed on Twitter.
For more than half a decade, Jim was a regular guest on “The Price of Business,” a nationally syndicated radio program on Bloomberg Talk Radio and has also appeared as a subject matter expert on many FOX Radio interviews. He is a regular contributor to several blog sites and has frequently been quoted in publications like the New York Times, Dallas Morning News, Philadelphia Inquirer, The Entrepreneur’s Review, The International Exit Planning Association’s blog site, and on INC.com, in addition to numerous, other industry publications, radio broadcasts, business books, and Internet media.
Jim received a Gold “Stevie Award” for “Thought Leader of the Year,” a Gold “Stevie Award” for “Media Hero of the Year During Covid” and a Bronze “Stevie Award” for “Best Entrepreneur” in the Category of “Business and Professional Services” at the American Business Awards ® in New York City. The competition received more than 3,700 nominations and is the premier accolade for business excellence in the US honoring organizations of all sizes and industries. Jim also received an “Outstanding Leadership Award” at the Money 2.0 Conference for his contributions to the financial services industry.
Jim is the author of “8 Steps to Becoming an ETHICS FOCUSED ORGANIZATION,™” a small business certification program that utilizes a unique eight – (8) step approach for strengthening ethics in any organization. The certification program won the Better Business Bureau’s “Torch Award for Ethics” for the North – Central Texas Region, the International Better Business Bureau’s “ Torch Award for Ethics,” and a Gold “Stevie Award” for “Ethics in Sales” at the International Sales & Customer Service Stevie Awards®. Participants who complete this certification program are eligible to receive eight – (8) continuing education units from the University of Texas’ Division of Enterprise Development.
Jim received his Certified Business Exit Consultant (CBEC)® designation from The International Exit Planning Association (IEPA) to help entrepreneurs, small business owners, family businesses, and middle market companies maximize their business exit, and he received his certification in succession planning from the ASPE.
Jim is also a Certified Management Consultant (CMC)® and an active member of the Institute of Management Consultants. The Certified Management Consultant® mark is awarded by the Institute of Management Consultants USA (IMC USA) and represents evidence of the highest standards of consulting, a commitment to continuous development, and an adherence to the ethical canons of the profession. Less than 1% of all consultants in the world are Certified Management Consultants (CMC.)®
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