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The ideal timing for planning an exit strategy is at least 5-10 years beforehand. But unfortunately, that kind of diligent approach is not always applicable. So how does a CEO or an owner can perform a quicker exit?

Last week, I addressed a group of 100 business owners on exit planning strategy. The first question that they asked me was the one I get from owners every single time. It’s “What’s the most optimal timing to start the process of exit planning?” I gave the questioner the conventional, “It depends” answer. Each owner and business has unique needs and end goals that need to be taken into consideration. Despite multiple misc situations on the table, let me offer a plausible timeline and a checklist. Now is really when the process should begin, but this checklist will help narrow the range a bit. “Now” is really when the process should begin, but this checklist will help narrow the range a bit.

At Least 10 Years Beforehand.

To truly leverage the opportunities available to owners, exit planning should begin many years in advance.

Save Taxes:

In a perfect world, a business owner who has converted from C Corp to S Corp filing status must be waiting at least 10 years before selling his share. After the S Corp election has been in effect for 10 years, the built-in gains tax is no longer applicable.

Family Business Succession:

If the business is designed to be a family legacy, planning needs to start well beforehand. First, since there usually is no profitable event for the owner (e.g. a sale) the owner needs additional time to generate other sources of retirement income. Second, if owner’s kids succeed at managing the business, they obviously need a fair amount of time to practice up appropriate management and leadership skills.


At Least 5 Years Beforehand

– There are few exit planning strategies which can max out the amount of income an owner can get from a business. Still, a majority of these strategies require an extra time to work.

With some capital growth and staging, the seller can achieve a ceiling high best price.Tom Stoppard

Tax Leverage:

Sometimes, non-qualified compensation plans are used as tools for providing retirement income to the departing business owner. For example, instead of getting leverage from an owner’s stock through $2 million in non-deductible payment by installments, the owner would rather offer his or her shares to the business for a defensible $1.5 million. It will also enable them to receive $500,000 in deferred compensation payments. With such a pathway at least 25% of the payments for an existing owner fall under a deductible category to the company as deferred wages. In order to be legally recognized as a deferred compensation plan, this way needs to be created beforehand for a sufficient period of time. All the while owner was an employee.


Tax Deduction:

In a similar way, some practices work with a defined benefit pension program as part of an exit strategy to leverage the retirement capital. When the case is that there’s an old owner and a young owner, the bulk of payments going into the defined benefit plan would be converted to the old owner’s benefit. Such transfers of capital to the old owner on a tax deductible basis is effectively the best possible solution.

Still, in order for the qualified plan to build up a big enough benefit, a defined benefit strategy needs to be funded for at least five years beforehand.


At Least 3 Years Beforehand

While on one hand 3 years might seem like a good deal of time ahead, with our fast rhythm of living three years can pass like a day in a planning regard…

Statute of Limitations:

In case a family owned business consists of gifts of shares in the firm, it is crucial to place a fair value on the shares and begin the clock running with the IRS. It might be a bit challenging to assign a value to a closely-held business, so the sooner the value is agreed upon and filed a gift tax return, the sooner the family can proceed with all the planning.

Capital Improvements:

Selling a business is sometimes similar to selling a home. With some capital growth and staging, the seller can achieve a ceiling high best price. The improvement in price will only take effect when a business structure and internal processes are revamped as well…

Earnings Improvement:

People ask me all the time on one, universal solution for all types of property and business, in regard to a price hike. My answer always is: show better earnings. Especially after the Great Recession, buyers became quite skeptical about companies showing weak earnings.  So, if your strategy has been to suppress the earnings in order to save on taxes, an exit strategy may suggest you start reporting improved earnings. What is lost to taxes is more than made up for the sale price.

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