Adviser Investments and Polaris Wealth Advisory Group are now RWA Wealth Partners.

How To Develop an Exit Plan for Your Successful Business

Building a successful business has been your life’s work. It’s your primary source of wealth, your retirement plan and a significant point of pride. You likely have strong emotional ties to your company, so it’s hard to imagine giving up control to anyone else. But the day will come when you need to move on, which begs the question: Have you thought seriously about how you plan to exit?


According to the Exit Planning Institute, 80% to 90% of an owner’s net worth is tied up in their business, and 70% of owners recognize the importance of succession planning.1 Yet there’s a startling disconnect: Only 30% to 40%2 of businesses that hit the market actually sell, and 80%3 of business owners have no documented transition plan or strategy. In addition, just 34%4 of small business owners have a written financial plan for retirement outside of their business assets.


The gap in sale readiness and planning is concerning, especially as many business owners approach their 50s and 60s unprepared. At RWA Wealth Partners, we have experience assisting business owners in crafting and implementing selling strategies that align with their personal and financial goals. Here we share our thoughts on developing an effective exit plan for your successful business and how we can help you prepare for this important milestone.

Personal tax rates are probably going in one direction: Up.

Personal tax rates are probably going in one direction: Up.

Make time to plan upstream

The right time to plan for the sale of your business can vary, but ideally you should think as far ahead as possible—as early as three to five years before you intend to step away.5 On average, it takes 7.3 months6 to sell a business, based on an analysis of transactions since 2000, though larger businesses often require even more time because of their complexity.


One major challenge in planning for a sale is time management. It’s easy to get caught up in the day-to-day operations, but focusing too intently on immediate business needs can detract from long-term planning. On the other hand, your business could lose its competitive edge if market share and profitability suffer during this transition period. The goal is to balance managing current operations and planning for the future.


To mitigate operational risks and ensure a smooth transition, consider the following steps as you think about transition planning:


  • Engage interim management. Bring in experienced consultants or interim executives who can help maintain business momentum while you focus on exit planning.


  • Accelerate leadership training. If you’re passing the torch to the next generation within the company, start their leadership training early. This helps to set up a more seamless transition of management.


  • Streamline business processes. Begin refining your business processes in advance. This makes the business more attractive to potential buyers and can increase its value.


  • Document and standardize. Create a record of institutional knowledge and standardize non-core functions. This makes the transition easier for new owners or management.


  • Set transition expectations with key talent. Communicate your transition plans with key staff members. Discuss their roles post-transition and consider retention strategies like bonuses or promotions.


  • Seek guidance from your advisor. Talk to your wealth advisor about the goals for your business exit or transition. They can provide a comprehensive assessment of how different approaches will affect your financial plan. Your advisor can also coordinate with other professionals, such as accountants and attorneys, to put timelines and processes in place ahead of executing your transition.


Giving yourself ample time to plan your exit not only increases the likelihood of a successful sale but also positions your business to continue thriving under new leadership.

Weigh your exit options

You may already have plans in the works to pass on the family business to your son, daughter, grandchild or trusted employee. When that’s not an option or you’re concerned about the potential conflicts it could create, you can arrange to sell to an external buyer, which comes with its own benefits and challenges. Let’s inspect each exit option.


Family transition

Transferring your business to a family member with the interest and experience needed to take over can be appealing. This approach can offer tax savings, such as lower capital gains taxes, gift tax exclusions and estate planning benefits.7 Handing over the keys to your children, grandchildren or other family members also holds special meaning for your legacy. However, mixing family and business can be unpredictable and may lead to potential conflicts, concerns about the next generation’s ability to manage the business effectively, and possible financial strain.


Management or employee buyout

Facilitating a management or employee buyout lets you pass your business to someone who already knows it well and is committed to the stability and growth of the company. There are a few different arrangements you can explore. If you opt for a long-term installment sale, you will receive a steady income in retirement.8 Alternatively, with a leveraged management buyout, you’ll get a full cash payout at the time of sale.9 But there are challenges to selling your business to employees. For example, your buyer will need sufficient funds for the purchase, and securing financing can be complicated. If the business cannot perform well under new leadership after the transition, it could delay payments to you. There’s also a chance of selling your business for less than it’s worth and the possibility of the transaction taking longer to close than it would if you were working with an external buyer.


Selling to an external buyer

If you don’t have a family member or employee lined up to buy your business, you’ll need to find an external buyer. This route can be appealing because it often allows you to sell at the highest price, with most of the payment received upfront at closing.10 This process is typically more straightforward than other sale methods, especially with appropriate presale planning. However, this path means you lose control of your business once it’s sold, and if the full price isn’t paid in cash, you risk not getting the rest if future business performance suffers. Also, there are tax implications to consider, especially for C corporation owners, who may face double taxation. While you can complete the sale relatively quickly, without proper planning, you might encounter challenges like seller’s remorse or unmet expectations.

Assess the marketplace and your business

To prepare for exiting your business, consider taking the below steps in advance.


Research the market

Analyze recent trends and demands for businesses like yours. You can start by looking at recent sales or acquisitions in your sector. This process informs you about the current market, and it can help you set a realistic ballpark price and determine whether now is a good time to sell. Reviewing industry reports and consulting with market analysts can provide valuable insights. You can also talk to business brokers to get their perspectives on the current appetite for purchasing in your space.11 They will probably have insight into the competitive landscape given the volume of transactions they handle.


Evaluate strengths and weaknesses

It’s hard to look at your business critically. But you should be aware of its unique strengths and areas for improvement.12 For example, if your business has a strong customer loyalty base or proprietary technology, these may be significant selling points that increase your valuation. A limited market presence or outdated operational processes could be weaknesses needing attention. Addressing these areas can improve your business’s appeal and value or help you adjust your price accordingly.


Understand the implications of your business structure

The type of business you own, whether it’s a sole proprietorship, partnership, LLC, S corporation or C corporation, will determine the structure of the transaction and tax consequences of your exit plan.13

Sole proprietorships and single-member LLCs
Sole proprietorships and single-member LLCs typically allow only asset sales, where taxes are based on capital gains and ordinary income rates, depending on the allocation of the sale price. Multi-member LLCs, taxed as pass-through entities, usually treat sales as asset sales, with taxes depending on the purchase price allocation. These entities can also face higher self-employment taxes than S corporations.

Partnerships (limited partnerships and limited liability partnerships)
For partnerships, sales are also generally structured as asset sales; members pay taxes at capital gains and ordinary income rates based on the purchase price allocation.

S corporations
S corporations offer the flexibility of asset or stock sales. In an asset sale, tax rates are mainly determined by the purchase price allocation. A stock sale typically leads to capital gains taxation, with exceptions for payments like noncompetition fees, which are taxed as income.

C corporations
C corporations, unless elected to be taxed as an S corporation, face double taxation in an asset sale—first at the corporate level on the sale of assets and then at the shareholder level upon dividend distribution. You may be able to avoid double taxation through strategies like a personal goodwill sale or structuring the sale as a stock sale.

Given these variables, you need to plan your sale structure from the start, considering the allocation of the purchase price and the tax implications. Plan in advance to reduce taxes and maximize the value you gain from the sale of your business. We always recommend consulting with a CPA to understand the tax situation for your business transition.

Evaluate your sale readiness

When preparing to sell your business, evaluate several key areas to determine your level of readiness from a buyer’s perspective.


Start by looking at your business’s financial health. This means checking your revenue trends, profit margins and cash flow. For instance, a dental office should assess its patient billing cycles, and a legal firm might consider its billable hours and client retainers.


Next, examine your business operations. For a health office, this might involve reviewing how effectively you manage patient appointments and staff scheduling. A legal firm should consider its efficiency in handling cases and client consultations.


Your customer base and market position will also be scrutinized in the sale process. Assess who your clients are, how much of the market you hold and how your brand is perceived. A health office could have a strong local presence with loyal patients, while a legal firm might be recognized for expertise in a certain niche.


In addition, understand the performance of your employees and the management team. A well-trained and stable team suggests to a buyer that the business will continue to run smoothly after the sale. For example, a dental practice boasting a team of highly experienced dental hygienists indicates reliable patient care, while a legal firm with adept paralegals demonstrates a capacity for effective case management. This aspect of your business is a key indicator of its future potential under new ownership.


Consider the value of your intellectual property and physical assets. A health office may have patents and trademarks, and a legal firm might have proprietary case management software. Also, look at your equipment, property and inventory.


You can expect buyers to examine the growth potential of your business. They’re often interested in expansion possibilities, such as new locations for a dental office or new services for a legal firm.


Finally, review your contractual agreements and customer relationships. Long-standing contracts with suppliers and strong ties with key clients can significantly increase the value of your business. For example, a health office might have reliable medical suppliers, and a legal firm may have corporate clients.


Understanding these factors will give you a clear picture of whether your business is ready to sell, where you want to make improvements in the years prior to selling, and what your business’s appeal might be.

Get an unbiased valuation

Surprisingly, most small business owners don’t know their business’s actual value. A survey by M&T Bank revealed that a staggering 98% of small business owners were unaware of their company’s worth.14


To get an unbiased valuation, hire an independent valuator. Rather than relying on your accountant or someone internally connected to your business, opt for a qualified business appraiser from an outside firm. This approach helps to eliminate bias and provides a more objective view of your business’s value.


Many owners hesitate to invest time or money in an independent valuation, but it’s a necessary step, especially since the IRS requires a fair market valuation15 for selling or gifting company shares. A professional valuation not only sets realistic expectations for sale proceeds but also benchmarks future growth. The cost for such services can range from $5,000 to $50,000, depending on your business’s size and complexity.16


When looking for a qualified appraiser, consider those accredited by professional bodies like the American Institute of CPAs or the National Association of Certified Valuators and Analysts.17 These organizations set the standards for business valuation.


There are three common methods18 for business valuation:


Asset-based approach. This method totals up all the investments in the company. It’s often suitable for businesses with significant physical assets, like a manufacturing company.


Income-based approach. This focuses on the income the business generates. It’s a good match for businesses with steady earnings, such as service-based industries.


Market approach. This compares your business to similar ones that have recently sold. Retail businesses often use this method because of the availability of market data.


Valuations will consider both tangible and intangible assets.19 Tangible assets, like buildings, inventory and equipment, have a clear physical presence and monetary value. In contrast, intangible assets—like workforce expertise, brand reputation, intellectual property and customer relationships—often carry more value.

Find the right buyer

Selecting the right buyer for your business is a decision that shapes not just its immediate future, but also its long-term legacy. The choice varies depending on whom you’re selling to—a family member, an employee or business partner, or an external third party. Each of these options requires a unique approach and preparation, tailored to meet both your needs and those of the business. Let’s look at the specifics of each scenario.


Selling to a family member

If you’re planning to transition the business to a family member, assess who might be genuinely interested, qualified and committed to taking over. Family limited partnerships (FLPs) can help in this transition, offering a structured approach for gradual ownership transfer while providing tax benefits and allowing senior family members to maintain control.20 Work with legal and financial advisors to structure the transition smoothly, considering factors like ownership percentages, funding and governance. Open communication among family members is important to minimize conflicts and ensure everyone understands the process. Decide how much business value you need to convert into cash for your retirement or living expenses. Explore options like leasebacks and partial sales, which can provide liquidity while still maintaining a stake in the business’s future success.


Selling to an employee or partner

Selling to an employee or partner involves identifying individuals within your organization who align with the company’s goals and have the skills and dedication needed to run the business. Assess their financial capabilities and whether they have the relevant experience to manage the business effectively. Enlist the help of legal experts to draft agreements that detail the sale terms, including price, payment terms and ownership structure. Make sure the transition includes training and support for the new owners.


Selling to a third party

When considering selling to a third party, you should first decide on your ideal buyer profile. Think about what matters most to you, such as their industry experience, financial resources or management style. To find potential buyers, you can work with bankers, business brokers or lawyers—or reach out through industry associations and contacts. You might also list your business on sale sites or approach competitors and private-equity-backed management groups.


If you’re not finding the right buyers, specialized M&A firms can help by using their extensive databases. Before selling, organize your finances and legal matters and create an information memorandum that showcases your business’s strengths. Develop a marketing strategy to reach potential buyers through industry publications, online marketplaces and social media. However, be cautious with marketing so that you can keep the sale confidential. Premature publicity can create uncertainty and disrupt business operations.

Overcome family business challenges

Navigating succession planning can be challenging for many family businesses, often creating complex situations and delicate family dynamics. Here are some common scenarios and concerns we hear about:


  • I planned for my son to take over the family dental practice, but he chose to relocate and start his own practice in a different part of the country. Now what do I do?


  • Among my children, my daughter has been the most involved in running the family clinic. But my other kids want in, too. How do I transition her to leadership without creating conflict?


  • I sold our family health care practice to a relative, but she started missing payments six months later, and my retirement income is suffering.


  • My VPs quit when I announced my intention to pass on the company to my children, and now the future of the business is at risk.


Here are some of our recommendations for a smooth transition:

  • Choose the right family member. It’s important to select a family member with the right mix of experience, skills and enthusiasm for the role, who also has earned the confidence and respect of the staff.


  • Verify financials prior to the sale. Confirm that the family members involved can buy you out or meet the terms of the sale.


  • Have a communication plan. Announcing a plan to pass the business to family members can sometimes lead to key staff leaving. A transition plan should include strategies for retaining essential employees.


  • Address post-sale issues. If a family member who bought the business starts missing payments, it’s important to tackle this issue promptly. Renegotiating the terms or looking into different financial solutions can help secure your retirement income.


  • Seek expert advice. Consult with our team of wealth advisors, in-house specialists and financial planners for guidance on presale preparation and sale management.

Negotiate the deal

When negotiating the sale of your business, it’s important to build a strong relationship with your buyer. Here are some strategies to consider:

Be transparent. If there are any issues or potential problems with your business, it’s better to raise them yourself early on. Being candid about any red flags not only builds trust with the buyer, but it also prevents surprises during the due diligence process.

Have a backup plan. Always keep options open, whether that means having alternative buyers lined up or being prepared to continue running the business yourself. This approach gives you the flexibility to walk away if negotiations aren’t favorable, enhancing your bargaining power.

Understand the financial implications. Be aware that negotiations will probably involve discussions about tangible and intangible assets. As a seller, you might prefer to allocate more of the sale price to capital assets and intangibles—which are often taxed at lower capital gains rates—than to assets taxed at the higher ordinary income rate.

Work with an advisor. Since high-stakes negotiations might not be your everyday routine, it’s helpful to bring in experienced advisors.

By following these steps, you can navigate the complexities of deal negotiations more effectively and work toward a sale that meets your financial goals.

Incorporate your business into your estate plan

When you own a business, you need to combine estate planning with exit planning for a well-rounded strategy. While estate planning focuses on protecting your family and assets and minimizing tax liabilities, integrating exit planning addresses the specific needs of business transition.


Your plan should identify potential successors, set up a clear strategy for leadership transition, and consider how ownership and management transfer will be structured. You also need to properly value the business to determine estate tax liabilities and fair distribution.


You should also incorporate tax planning into your estate plan by using strategies to minimize estate taxes, gift taxes and capital gains taxes on your business. This could involve setting up trusts or using structures like FLPs to reduce taxes.


Exit planning complements estate planning by focusing on transferable value, ensuring that your business retains its worth even if you’re not involved in daily operations. This is crucial for maintaining the business’s value in unforeseen circumstances. Work with experienced professionals like financial advisors, estate planning attorneys and tax advisors to navigate these complexities so that both your personal and business affairs are managed according to your wishes.

Bridge the exit planning gap

Think of the current estate tax breaks as a limited-time offer.

Think of the current estate tax breaks as a limited-time offer.

We see a significant disconnect between the importance of exit planning for preserving wealth and the actual level of preparedness among business owners. It’s critical to take charge and start planning your business transition well in advance, particularly if your business represents much of your net worth.


Begin by identifying potential buyers and valuing your company accurately. Recognize that family businesses often face unique challenges in succession planning, including family dynamics, readiness for change and financial obstacles.


You should engage your team of trusted business advisors as soon as possible. At RWA Wealth Partners, we can help you create a customized business exit plan that fits your specific goals. Whether you’re depending on the sale to retire or want to see your business continue to grow under new leadership, we’re ready to guide you through this important process.

The current tax code has an expiration date, and the sunset is approaching faster than a filibuster in a contentious Senate debate.



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For informational purposes only. Our statements and opinions are subject to change without notice. Data and statistics contained herein are obtained from what believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.