The Business Owner Guide to Exit Planning

For most business owners, the business is the biggest asset they own — often representing 50 to 90% of their total net worth. Yet fewer than 20% of owners have a documented exit plan. The result is that when the time comes to sell, many owners are surprised to find the business is worth less than they expected, that they owe far more in taxes than they anticipated, or that they have no plan for the income they used to draw from the business.

Exit planning is not just about selling. It is about building a business that is transferable, maximizing its value before a transaction, structuring the deal to minimize taxes, and ensuring that the proceeds support your life after work. Done well, it is a multi-year process. Done poorly — or not done at all — it is one of the most expensive mistakes a business owner can make.

Start Three Years Before You Want to Leave

Three years is the minimum meaningful runway for exit planning. In that time, you can: clean up any financial irregularities that reduce valuation, reduce owner-dependency (the single biggest valuation discount buyers apply), build out a management team, diversify your customer concentration if needed, choose the right exit type, find and vet advisors, and structure the transaction for optimal tax outcomes.

Owners who start planning 12 months before a desired sale are at a significant disadvantage. Buyers see everything, and issues that take 2 years to fix cannot be fixed in 60 days of due diligence.

Business Valuation Basics

Most businesses are valued based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). The multiple varies enormously by industry, business size, growth rate, and recurring revenue profile. Service businesses typically trade at 3–6x EBITDA. SaaS and technology businesses trade at 5–12x or higher. Manufacturing businesses typically trade at 4–7x.

Importantly, these are applied to "normalized" EBITDA — meaning the buyer will add back any expenses that are owner-specific (personal car, excess owner compensation above market rate, one-time costs) and subtract revenue that is at risk. The higher your normalized EBITDA and the cleaner your financials, the higher the multiple you command.

Types of Exit

Strategic sale to a larger competitor or adjacent business: typically the highest valuation because the buyer is paying for synergies. Process is typically managed by an investment banker.

Private equity recapitalization: you sell 60–80% of the business to a PE firm, take money off the table, and roll over equity for a "second bite" when the PE firm eventually sells. Good option if you want to stay involved and participate in further upside.

Employee Stock Ownership Plan (ESOP): the business is sold to an employee trust. Can have significant tax advantages (C-Corps can potentially sell tax-free under Section 1042). Complex to structure.

Family transfer: selling or gifting to family members. Estate and gift tax planning becomes central. Requires careful valuation and structuring.

Management buyout: your existing management team acquires the business, typically with SBA financing or seller financing.

Tax Implications: Asset Sale vs. Stock Sale

This is one of the most important decisions in any business sale, and buyers and sellers almost always have opposite preferences.

In an asset sale, the buyer purchases specific assets and liabilities of the business. The seller pays tax on the gains on each asset class — ordinary income on assets like inventory and accounts receivable, capital gains rates on goodwill and certain other assets. Buyers prefer asset sales because they get a stepped-up tax basis.

In a stock sale, the buyer purchases the shares of the company directly. The seller pays capital gains rates on the entire sale price above their basis. Sellers prefer stock sales because of the lower tax rate. C-Corp owners should also explore QSBS exclusion under Section 1202, which can exclude up to $10M (or 10x basis, whichever is greater) of capital gains entirely.

Building Your Exit Planning Team

You need four advisors for a well-run exit: a CPA with M&A experience (manages tax structure, due diligence preparation, closing adjustments); a transaction attorney (drafts and negotiates the purchase agreement); a financial advisor (plans for the personal financial implications post-close: investing proceeds, managing tax liability, retirement income planning); and for transactions above $5M, an investment banker (runs a competitive process to maximize price).

These four roles are distinct. Your current CPA may not have M&A experience. Your business attorney may not be a transactional specialist. Assemble the team intentionally.