When should I start planning my exit?

Ideally three to five years before you want to step away, and earlier if you hope to pass the business to family or employees. The steps that raise a business's value and lower the tax on a sale, such as reducing how much the business depends on you, take time to show up in the numbers.

What are my options for leaving my business?

The four common paths are selling to an outside buyer, selling to your managers or employees (including through an employee stock ownership plan), passing it to family, or winding it down and selling the assets. Each has different effects on price, taxes, timing and the people involved.

How do I know what my business is worth?

A professional valuation gives you a real number, and many owners get one years before they plan to sell, so they know where they stand and what would raise it. Value usually depends on steady profits, how much the business depends on you, and how easily a buyer could step in.

How can I reduce the tax on selling my business?

How a sale is structured, when it happens and how you're paid all affect the tax. For example, whether the buyer buys the company's stock or its assets, and whether you're paid all at once or over several years. These choices need to be planned with your CPA before a deal is signed, not after.

How Do I Plan My Exit From My Business?

Start with what you want

Before the numbers, start with the question only you can answer: what do you want your life to look like after the business? Some owners want a clean break and a sale price that funds their retirement. Others want the business to carry on with their family or their team, even if that means a lower price. Many want to stay involved part-time for a while. Your answer shapes everything else.

It also helps to know your own number: how much you need to step away and still live the life you want. If most of what you own is the business, your retirement depends on the exit going well. How Much Do I Need to Retire? walks through how to work that out.

The four ways owners step away

Sell to an outside buyer. Often a competitor, a larger company or an investor. This can bring the highest price, but buyers look hard at the numbers and often ask you to stay on for a transition period.
Sell to your managers or employees. The people who know the business best buy it, often paying over time. An employee stock ownership plan (ESOP) is one way to do this for larger businesses and can have tax advantages.
Pass it to family. By sale, by gift or a mix of the two, often over several years. This calls for estate planning and an honest conversation about who wants to run it and how to be fair to the children who don’t.
Wind it down. Close the business and sell the assets. It’s sometimes the right answer, especially for a business that depends entirely on the owner, but it usually brings the least.

Why the best exits start years ahead

Buyers pay for a business that runs well without its owner. The steps that make that true take time to show up in the numbers:

Reduce how much the business depends on you. Train a manager, write down how things are done, and move key client relationships to your team.
Clean up the books. Two or three years of clear, accurate financial statements make a business easier to value and to sell.
Know what it’s worth. A professional valuation now tells you where you stand and what would raise the price.
Plan the tax before the deal. Whether a buyer buys the company’s stock or its assets, how the price is split, and whether you’re paid all at once or over time all change your tax bill. Your CPA needs to be involved before you sign anything.
Line up the people. A buy-sell agreement, a successor or the right buyer can take years to put in place. See What Is a Buy-Sell Agreement?

Build savings outside the business

One of the most useful things you can do for your exit has nothing to do with the sale itself: build savings outside the business. A retirement plan through the business lets you set money aside each year, often with a tax deduction (see Which Retirement Plan Is Right for My Business?). Then your retirement doesn’t depend on one sale going well, and you can choose when to sell instead of having to.

Your team

An exit usually involves several professionals: a CPA for the tax side, an attorney for the contracts, a valuation expert and, for a sale, often a business broker or investment banker. We help you plan the personal side, what you need from the sale and how to turn it into income you can count on, and when you need a specialist, we bring one in from our network of trusted professionals and coordinate the work so they talk to each other.

Questions to ask yourself

When would I like to step away, and what would I do next?
Who do I want to own the business after me?
Do I know roughly what it’s worth, and what the tax on a sale would be?
Could the business run for a month without me?
How much do I need from the sale to retire, and how much have I saved outside it?

The free Business Owner Blind Spot Check and Business Owner Tax Leak Audit are quick ways to see where you stand. When you’d like to talk it through, we’re glad to meet, at no cost and no obligation. See how we work with owners on Owning a Business.