Preparing for a Business Exit: Tax and Financial Considerations

Selling a business isn’t something you do on a whim. Whether you’re retiring, transitioning leadership to a family member, or getting ready for an acquisition, your exit deserves the same level of care and planning you brought to building the company. And truthfully? The financial and tax side of an exit is often the most overlooked—and the most expensive if mishandled.

At Andrea Ward CPA, we help business owners get ahead of the transition curve. A smart exit plan isn’t just about getting the best sale price—it’s about keeping as much of it as possible. From reducing tax exposure to choosing the right deal structure, every decision you make today affects your financial future tomorrow.

This blog outlines what to consider long before the paperwork hits your desk—so your exit is not just clean, but smart.

Why Exit Planning Starts Years in Advance

You can’t slap together an exit plan in the final weeks before closing a deal. Strategic planning ideally starts 3–5 years out. Why?

• It gives time to optimize financials
• You can clean up any red flags (legal, tax, or operational)
• It positions you to attract better offers

Think of it like staging a home before selling. If the books are sloppy or liabilities are high, buyers will either walk—or offer far less.

Choose the Right Exit Strategy

There’s no one-size-fits-all way to leave a business. Your ideal exit depends on your goals, timeline, and the people involved.

Common exit paths:

• Sale to a third party: Sell to a competitor, investor, or private equity firm.
• Family succession: Pass the business to children or relatives.
• Employee buyout (ESOP): Sell to your team via an Employee Stock Ownership Plan.
• Merger or acquisition: Combine with another firm.
• Liquidation: Wind down and sell assets (not ideal for most).

Each path has very different tax consequences and planning needs.

Client story: A small manufacturing company originally planned to sell to a third party. After review, the owner opted for an internal sale to the COO over a 7-year period. With the right tax planning, he reduced capital gains and maintained income throughout retirement.

Know the Tax Implications

Here’s where things get real. Selling your business can trigger a sizable tax bill—capital gains, depreciation recapture, state taxes, and possibly even net investment income tax.



1. Capital Gains Tax

When you sell business assets or shares, gains may be taxed as long-term capital gains (currently 15–20% federally) if held over a year. That’s often more favorable than ordinary income rates.

But how your deal is structured affects what qualifies:

• Asset sales may trigger higher taxes (depreciation recapture, ordinary income)
• Stock sales may allow more favorable capital gains treatment

Tip: Buyers usually prefer asset sales; sellers prefer stock sales. Negotiating this is critical.

2. Installment Sales

Spread payments (and taxes) over multiple years by using an installment sale agreement. This can:

• Reduce your annual tax burden
• Provide retirement cash flow
• Offer flexibility to the buyer

But beware of interest income and defaults—work with a CPA to structure the terms wisely.

3. State and Local Taxes

Where your business is located and where the buyer is based can affect how much state tax you owe. Planning ahead may open opportunities to mitigate exposure.

4. Retirement and Charitable Tools

Use your exit to fund:

• Retirement accounts (like solo 401(k)s or defined benefit plans)
• Donor-Advised Funds (DAFs) to offset gains with charitable deductions
• Charitable Remainder Trusts (CRTs) to spread income and avoid immediate tax hits

Example: One client donated $250,000 of appreciated business equity to a DAF before closing. They supported causes they care about and reduced their taxable gain.

Clean Up Financials and Operations

Messy books kill deals. Before you list or negotiate:

• Reconcile all accounts
• Remove personal expenses from business records
• Prepare clean, audited financial statements
• Resolve outstanding debts or lawsuits
• Document key processes and contracts

Not only does this reduce buyer concerns, but it strengthens your valuation.

Final Thoughts: Leave on Your Terms, Not in a Rush

A successful business exit isn’t just about selling—it’s about preserving what you’ve built and setting up your future. Whether you’re cashing out, passing it on, or stepping back, you want to do it with clarity, confidence, and a rock-solid plan.

At Andrea Ward CPA, we help business owners prepare for smooth transitions that honor their work and maximize their returns. From tax mitigation to financial forecasting, we’re here to make sure you don’t just get out—but you get out smart.



Because the only thing worse than paying too much in taxes is walking away from the business you built without a plan.