You will exit your business at some point. That is as certain as death and taxes. Early preparation greatly enhances your options to exit on YOUR terms.
A business owner recently asked me whether there was a way to avoid or reduce taxes when he sold his business. I asked him when he anticipated selling. His response: within 6 months. While there are options to reduce the tax-burden related to a business sale, they are limited if you have less than a 2-year runway.
Start Now to Control your Outcome
“When is the best time to plant a tree? Answer: 20 years ago. What is the 2nd best time to plant a tree? Answer: Right now. ”
How early should you prepare? The ideal answer is to plan for your exit when you start your business. When you start a business one thing is as certain as death and taxes: You will exit. If you intend to exit with highest possible value, it is best to start early. Chances are you know a “serial entrepreneur” that has a habit of starting and selling a new business every 4-5 years. Strategically, they approach their business very differently than someone who is simply starting a business in order to receive income.
However, if you have not started with the end in mind, you should start preparation at least 2-5 years before your anticipated exit. Or now, if you have even more time before you sell. You have perhaps heard the saying: “When is the best time to plant a tree? Answer: 20 years ago. What is the 2nd best time to plant a tree? Answer: Right now.”
There are multiple benefits that come with early preparation: strategically positioning your business for highest value, implementing tax strategies that significantly reduce the tax-burden with the transaction, maintaining value if disruptive life events happen, or mitigating feelings of emotional loss as you move away from your business. The potential benefits are endless.
What is the best time to prepare for your business exit? How about now…