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3 Key Items to Consider in Your Exit Planning Strategy

Brian D. Kitchen, CPA, MT
Brian D. Kitchen, CPA, MT Director, Tax Strategies

Planning for an exit from your business is a marathon, not a sprint. The exit should be the last step of a multi-stage process for a business owner. The exit planning process generally begins years in advance of the exit and requires discipline, strategy, and patience.

Here are three key items to address in the years before a transaction.

Review the entity’s structure. The structure of a business often remains the same from inception. While this is convenient, it is usually an area of concern leading up to an exit. In addition to operational assets, the business may hold real estate or non-operational assets as well as certain intellectual property.

Owners should consider restructuring their business so that all of the business’ assets are properly housed. This may require transferring operational real estate to a real estate entity or assigning intellectual property to a holding company. While this creates a bit of extra work, it will allow the business to be more flexible with the transaction structure and, importantly, will likely generate a more favorable tax outcome.

Conduct a state and local tax health check. The state and local tax landscape has evolved tremendously over the past decade, and businesses must be extremely cognizant of the changing state of all things state and local tax related. This can encompass several aspects, such as sales and use tax, income tax, franchise tax, and payroll tax. Every business, regardless of industry, must adhere to changing laws and requirements.

For a business to put itself in the best position for a sale, significant effort must be put forth to evaluate potential exposure and missteps in state and local tax compliance. This effort should be conducted routinely as part of an annual review process.

Determine walk-away cash-flow. More often than not, a business owner’s first request when planning for their exit is to ask us to perform an after-tax net proceeds analysis. In an ideal world, proper planning would have been completed well ahead of time to ensure this amount is maximized. This calculation is vital for a business owner to properly evaluate certain offers, and should align with the owner’s gift and estate plan as well as their long-term retirement plan. The analysis helps a business owner make more educated decisions on gifting and estate strategies, while ensuring their retirement goals will still be met.

It’s important to remember that preparing an exit plan well in advance of your exit will allow the process to be far more successful. If you have any questions or if you would like to discuss steps to take as you begin planning, please contact us.

Brian D. Kitchen is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.  

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Brian D. Kitchen, CPA, MT

Brian D. Kitchen, CPA, MT

Director, Tax Strategies

Business Tax Specialist, Individual Tax Specialist

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