Business Exit Planning: The Decisions That Shape What Comes Next
A guide to preparing to sell your business, and the planning that happens leading up to the transaction.
By Sky Investment Group · Hartford, CT 14 min read
Key Takeaways:
01
The biggest decision an owner makes before a sale.
The role you want to play once the sale is done. If you want to continue your involvement, you’re looking for a financial partner, and that’s a different transaction than a sale.
02
How far ahead does the planning need to start?
Years. Entity ownership, state domicile, and estate coordination all carry look-back periods, and none of that work can be compressed once a buyer is at the table.
03
Don’t get caught off guard after closing.
The identity of your previously-owned business has to attach to something else, and the family may need to adjust to a different kind of balance sheet.
Every time I sit down with a business owner to discuss a potential sale, we start with what the business is worth. But the harder question that comes up almost immediately is what you want the day after the transaction closes.
The fear I often see when working on business exit planning is that while the numbers are set, the structure and future are not. Whether it’s a tax structure that should have been handled years prior, or a transition plan that isn’t exactly what an owner had in mind.
Exit planning gives you a chance to handle those things while there is still time. With the proper foresight, it can shape the terms you negotiate, the buyer you choose, tax implications, and how you and your family experience the years that follow.
If a sale is anywhere on your horizon, even if it is years away, you shouldn’t wait until it is too late to get the details in order. The real work of business exit planning should start today.
Start With the Role You Want After the Sale
The biggest decision is what role you want to play in the business once it’s no longer yours. Get this wrong in either direction, and you live with it for years. Some owners negotiate a transition period, then spend eighteen months showing up to a company where they have no real input. Others take the clean break and find themselves driving past the building six months later, wondering what could have been. Either way, the regret is real.
The right answer is the one that will still feel right years from now, and it deserves more thought than it often gets. In practice, the role you can keep usually ends up somewhere between these options:
A clean exit
You sell the whole business and leave. The simplest and cleanest break from the business entirely.
A defined transition period
A handoff period (can be up to several years) to hand off your knowledge. The transition period is negotiated during the sale.
An operating role under new ownership
You keep running the business as a paid employee.
A minority stake alongside a financial partner
You sell a majority position in the company but still retain a small ownership stake. You get to benefit from the business’s success without having to control the decisions.
A board or advisory seat
Your influence remains, but authority to make decisions does not. This works well if you still prefer to have a voice without being a key decision-maker.
Picture the Life Before You Price the Business, and Talk it Through
Spend real time visualizing what life looks like after the sale. For example, what would you do on a normal Tuesday? Decide how much time you genuinely want to keep putting into work and have a conversation with your spouse before you assume you already know their answer. In many of the households I sit with, one person has carried the financial decision-making for years while the other has stayed in the background. That arrangement needs to change once the prospect of a business exit has the potential to change the relationship dynamic. One spouse might picture traveling and grandchildren while the other pictures a consulting practice, and that’s not something you want to discover weeks before closing. Have the conversation early while you still have time to shape the deal that is best for everyone.
Then bring in the numbers. If your family needs income after the sale, the terms matter, and non-competes and employment agreements deserve careful attention. Those documents can determine what you’re permitted to do next and what you will earn doing it.
All of it points toward your ideal buyer. An owner who wants out entirely and an owner who wants five more years of involvement should be talking with different buyers.
Plan to Leave, Even If You Don’t
If the entire business is sold, sellers should picture a life with no involvement in the company at all, even if they plan to stay. I can’t tell you how many times I’ve seen owner-sellers become frustrated with the new owners, regret giving up control, but not being in a position to do anything about it. Sometimes, a clean break is the best thing for everyone.
The Business Exit Planning That Has to Happen Years in Advance
Before a sale, your business interests need to sit in the right vehicles that serve your income needs, estate plan, and any charitable objectives you have. Identifying these takes time.
This is the part of business exit planning that’s best done years ahead of any transaction. The IRS and state tax authorities apply look-back periods, so a structure put in place six months before closing may not accomplish what the same structure would have five years earlier. State domicile deserves the same attention and the same lead time.
One item I see owners consistently overlook is that state taxes paid on a business sale generally can’t be deducted against federal income taxes. For an owner in a high-tax state, that can change the math on what the sale nets, and it’s far easier to plan around before the transaction than during it.
Selling to Family Requires the Hardest Kind of Honesty
Sales to family members are especially tricky and involve emotions and relationships just as much as money. You will have to look at your son, daughter, or family member in the buyer’s seat and make an honest assessment of whether they can run what you have built, knowing the honest answer might be no. This can be challenging, as most parents have a biased view of their children and want to believe they can take the reins.
We have seen more than a few businesses run into the ground by family members who purchased or inherited a company they weren’t equipped to run. When the business fails, the family relationships and wealth often go with it.
The antidote is to have early conversations with clear expectations, thorough preparation, and an honest answer about whether this is a business the next generation actually wants.
The Part No One Puts in the Term Sheet
Owners project the business into their own identity, usually after doing it for decades. It’s understandable. It’s also what makes the first year after a sale so disorienting. The phone stops ringing and problems that were yours for as long as you can remember are now brought to someone else. The calendar that ran your life is now empty by nine in the morning. It’s no wonder that the Exit Planning Institute reports roughly three out of four owners profoundly regret selling their business within a year of the transaction.
This is likely tied to the strong personal ties business owners have to their enterprise. After the closing, the business isn’t yours. Over time, its identity has to migrate to reflect the new owners and their vision.
If you are undergoing a sale, you should think about attaching your self-image to something other than your business, and do it before the closing date. Owners who handle this stretch well usually have the next thing at least sketched out, whether it is a board seat, charity, new venture, or a retirement plan.
A Conversation Most Families Skip
Many sellers find they have less discretionary income after the sale than they had while running the business. The company may have been paying for things nobody ever itemized: company vehicles, phones, travel, club dues, or even a payroll line for a family member. This all comes off the books at closing and shifts to a portfolio that now has to fund the same life for the next thirty years.
This means the number that looks huge on a term sheet must stretch further than most people assume. A family used to spending without much thought should consider this before closing, not after the documents are signed. It’s a short conversation and an uncomfortable one. Avoiding it doesn’t make the arithmetic go away.
How to Prepare Before a Sale Is on the Table
If a transition is on the horizon in the next few years, these business exit planning priorities can help keep you aligned before the process starts.
1
Decide what role you want after the sale and write it down.
Talk it through with your spouse. Buyer type, deal structure, non-compete terms, and employment agreements all flow from that one conversation.
Get your interests into the right entities, in the right state, early.
Look-back periods mean the runway you have today is longer than the runway you will have next year. Entity and domicile work done in advance can change what a sale nets for your family and what your estate plan can do with the proceeds.
3
Take as much of the price in up-front cash as the deal allows and reduce your post-sale exposure.
Many owners underestimate how much of the business’s performance historically rested on them and assume the new owner will run it well. Unfortunately, that is frequently not the case. Cash at closing can reduce the financial risk you carry after the sale, and eliminating post-sale liabilities helps protect the balance sheet you spent decades building.
Where We Fit Alongside Your CPA, Attorney, and Investment Banker
As a sale approaches, you already have a CPA, attorney, and investment banker working on your behalf. All three are good at what they do. What’s missing is the person tying their work together.
Our role through all of this is to listen, take the input of specialists and help you sort out what matters most. When a specific issue calls for a specialist you don’t have, whether that’s an M&A attorney, tax attorney, or valuation expert, we will point you toward someone capable of handling it well.
Remember, a sale is one day.
What it buys you is the decades that follow.
If you’re beginning to think about a sale, we would welcome the conversation. And if you’re not yet working with SKY Investment Group, we invite you to learn more about how we help owners plan for what comes after the business.
