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Exit Planning for Business Owners

6min read

Author: Kyle Rudduck, CFA®, CFP®, Principal & Senior Wealth Advisor

As a business owner, you've poured your heart, soul, and countless hours into building a successful company. But what happens when you're ready to step away? 

As entrepreneurs, we understand the thrill of the journey that comes with launching and growing businesses. However, we often overlook the equally important part of this journey—planning the business exit.

Whether you're planning to retire, sell your business, or pass it on to the next generation, having a well-crafted exit plan is important to help ensure a smooth transition and maximize the value of your hard work. Comprehensive exit planning is much more than just leaving your business. Instead, it's about how and when you exit, aiming to maximize value and ensure continuous sustainability.

Why do you need an exit plan?

Exit planning is a strategic process that prepares you for the inevitable transition out of your business. 

It involves setting goals, understanding options, and devising a systematic plan. A plan that aligns not only with your business objectives but also your personal goals.

Exit planning is also crucial for maximizing your business's value — by identifying what’s driving value in your business and growing it, you can boost your eventual exit value. A successful exit plan offers direction and clarity, helping you make better decisions in the future. 

Lastly, effective exit planning can reduce your tax burdens and ensure a successful transition, protecting the business's ongoing success.

Here are some key steps to creating an effective exit plan for your business. 

Define your exit goals and objectives 

The first step in creating an effective exit plan is to clearly define your goals and objectives. 

What do you want to achieve by exiting your business? Are you looking to maximize your financial return, ensure the long-term success of the company, or create a smooth transition for your employees and customers? Your exit goals will serve as the foundation for your entire exit plan, so it's important to take the time to think them through carefully.

Some common exit goals for business owners include:

  • Achieving financial security for retirement
  • Maximizing the sale price of the business
  • Ensuring the continuity of the company's mission 
  • Providing for the future of family members or employees
  • Minimizing tax liabilities 

Conduct a comprehensive business valuation

Once you've defined your exit goals, the next step is to determine your business's current value. A comprehensive business valuation will give you a clear picture of what your company is worth and help you set realistic expectations for the exit process. 

There are several methods for valuing a business, including examining its cash flows, comparing it to similar businesses in its industry, or calculating its asset value. 

At Compound Planning, we offer a sophisticated dashboard that enables our clients to track their business and personal cash flows and net worth in real-time.

Without a comprehensive perspective, determining your desired valuation at exit can be challenging. Similarly, without proper planning, it's challenging to determine your desired destination upon exit.

Identity potential exit strategies for your business 

With your exit goals defined and your business valuation in hand, it's time to explore potential exit strategies. There are several common options for business owners looking to transition out of their companies, including:

  • Selling to a third party: This involves finding an external buyer, such as a competitor, a private equity firm, or a strategic acquirer, and negotiating a business sale.
  • Passing the business to family members: If you have children or other family members involved in the business, you may choose to transfer ownership to them through a structured succession plan.
  • Selling to employees: Employee Stock Ownership Plans (ESOPs) or management buyouts allow you to sell the business to your employees, giving them a stake in the company's future success.
  • Going public: For larger companies, an Initial Public Offering (IPO) can provide a lucrative exit strategy, allowing you to sell shares of the business to the public market.
  • Liquidation: In some cases, the best option may be to close the business and simply liquidate its assets, particularly if the company is struggling or has no interested buyers.

Develop a comprehensive exit plan

With your exit strategy selected, it's time to develop a plan to guide you through the transition process. Your exit plan should include the following key components:

  1. Timeline: Establish a clear timeline for your exit, including critical milestones such as valuation, marketing the business, due diligence, and closing the deal.
  2. Financial projections: Create detailed financial projections for the business, including revenue, expenses, cash flow, and capital requirements, to help potential buyers or investors understand the company's future potential.
  3. Management succession: Identify key employees who will be critical to the business after your exit and develop a plan to retain and incentivize them during the transition.
  4. Tax planning: Identify strategies for minimizing your tax liabilities during the exit process, such as structuring the deal as an asset sale or taking advantage of tax-deferred exchange opportunities.
  5. Communication: Develop a plan for communicating your exit to key stakeholders, including employees, customers, suppliers, and investors, to ensure a smooth transition.

Key elements of exit planning 

To create a comprehensive exit plan, there are several elements that you need to address.

Entity structure 

The legal structure of your business can have significant implications for your exit strategy. Whether you operate as a sole proprietorship, partnership, LLC, or corporation, your entity structure will impact your tax liabilities, transfer of ownership, and legal protections.

Are you considering an asset sale or a stock sale? Do you fully understand the tax treatment for each option? These are just a few questions that may arise when structuring your business for an exit.

Understand tax implications

Taxes are a critical consideration in exit planning. Depending on how you structure your exit, you may face significant tax liabilities. 

Taxes are inherently complex and frequently changing, making it difficult for owners to stay current and comprehend how these changes affect their exit plans. Working with a professional can help you identify strategies to minimize your tax burden, such as taking advantage of capital gains tax rates, structuring installment sales, or utilizing tax-deferred exchange options. Here are a few key tax considerations:

  1. Capital gains tax is one of the most critical tax implications of a business exit. If the sale results in a profit, the owner is typically liable for capital gains tax. The rate may vary depending on the duration of ownership and the owner's tax bracket.
  2. Depreciation recapture: Business assets like equipment or property often depreciate over time. If these assets are sold for more than their depreciated value, the owner may owe depreciation recapture tax.
  3. Stock vs. asset sale: The business selling method (stock sale vs. asset sale) can significantly influence the tax consequences. In a stock sale, the buyer acquires ownership shares, and the proceeds are usually taxed at the capital gains rate. In an asset sale, the buyer purchases individual assets, leading to different tax outcomes for each type of asset sold.
  4. Estate tax: If the business owner passes away and the value of their estate, including the business, exceeds a certain threshold, estate tax may be imposed.
  5. Tax on retirement funds: If the business owner has a retirement plan through the business, such as a Solo 401(k), and plans to withdraw funds due to the exit, additional taxes may apply.

Create an estate plan

Exit planning and estate planning go hand in hand. You've worked hard to build your business, and you want to ensure that your legacy is protected. 

For many business owners, your business constitutes a significant portion of their estate's value. This raises crucial questions: How will your business's value impact your estate and estate taxes? What about potential legislative changes affecting these taxes? It’s important to integrate these considerations into your exit strategy.

Incorporating estate planning strategies into your exit plan can help you minimize estate taxes, provide for your family's financial security, and ensure that your business continues to thrive after you're gone.

Challenges in exit planning

While exit planning is critical, it's not without its challenges. Here are some common obstacles business owners face when developing their exit strategies.


Knowing when to exit depends on market conditions, financial performance, and personal circumstances. Starting your exit planning early gives you ample time to implement strategies that boost your business's value and attractiveness to potential buyers.

Failing to start exit planning early can result in missed opportunities to enhance your business's value and could even lead to a rushed sale at a lower price. Additionally, inadequate preparation can increase tax liabilities and complicate the transition process, potentially jeopardizing the business's sustainability of the business.


Leaving a business you've put your heart and soul into can be emotionally challenging. It can be difficult to step back and view your company objectively, especially if you've built it from the ground up.

However, it's essential to separate your emotions from the decision-making process to make the best choices for your business and your future. Without a trusted team of advisors by your side, you risk missing out on the rewards you’ve worked so hard to achieve.


Another challenge in exit planning is accurately valuing your business. Many factors can impact your company's value, including its financial performance, market conditions, and industry trends. Working with a professional team—like Compound’s—can help you determine a realistic value for your business and identify areas for improvement.

How Compound Planning helps

Creating and implementing an effective exit plan is one of the most important things you can do as a business owner to ensure a successful transition and maximize the value of your hard work. 

At Compound Planning, we aim to be your trusted partner throughout your business journey, from inception to exit. We recognize business owners' challenges when planning an exit, and we're dedicated to making the process as seamless and beneficial as possible. Exit planning isn't just about leaving your business; it's about laying the foundation for future success and sustainability. With Compound’s guidance and tools, business owners can navigate this process effectively and confidently.

Sign up for a Compound Planning dashboard and schedule a free consultation to hear how our advisors can help you navigate your journey from inception to exit.