When and How to Start Planning a Business Exit

Most owners start too late

The most common mistake in exit planning is treating it as something to figure out when a deal appears. By that point, the decisions that move the number most (entity structure, holding period elections, residency planning, installment sale setup) are often already locked.

Exit planning is not about finding a buyer. It is about structuring your business and personal situation so that when a buyer appears, you keep as much of the proceeds as possible.

That work needs to happen before the deal is on the table.

The decisions that require lead time

Several of the highest-value exit planning moves have mandatory waiting periods or require structural changes that cannot be made on short notice.

• QSBS (Section 1202) exclusion: Shareholders in a qualifying C corporation who hold stock for at least five years may exclude up to $10 million in gain from federal tax. This requires holding the right entity type for the right duration. An LLC or S-corp cannot qualify without conversion, and the five-year clock starts over after conversion.
• S-corp built-in gains period: When a C corporation converts to an S corporation, a five-year built-in gains recognition period applies. Assets sold during this window remain subject to corporate-level tax on the appreciation that existed at conversion. Timing the conversion early matters.
• Installment sale elections: An installment sale spreads proceeds over time, which can reduce the tax bill by keeping income out of higher brackets in any single year. But structuring a deal as an installment sale requires the buyer’s agreement and the right deal terms from the start.
• California residency planning: California taxes income earned while a resident. Establishing genuine residency outside California before a sale can substantially reduce state tax, but only if the move happens well before the sale and meets California’s scrutiny on domicile and residency.
• Asset vs. stock sale structure: The tax consequences of an asset sale versus a stock sale differ significantly by entity type. For S-corp owners, a stock sale often produces cleaner capital gain treatment. For buyers, an asset sale provides a step-up in basis. Knowing which structure to push for, and why, requires understanding your entity, your basis, and your negotiating position before the deal starts.

What early exit planning actually involves

Starting early doesn’t mean spending years on complicated work. Most of the value comes from a handful of specific conversations and decisions.

• A clean business valuation baseline: Understanding what the business is worth now, and what drives that value, lets you make decisions about timing and structure. It also surfaces whether any entity cleanup is worth doing before a sale.
• A review of entity structure and basis: Is the business in the right entity for a sale? What is your basis in the stock or assets? These numbers directly affect the tax you owe on proceeds.
• A retirement account strategy that accounts for the sale: Business owners often have significant retirement account balances alongside the business value. How distributions from both are timed matters for overall tax rate management.
• A conversation with both CPA and financial advisor together: Exit decisions live at the intersection of tax and investment planning. When those advisors are in different rooms, the plan has gaps. The proceeds have to go somewhere, and that decision should be made before the deal closes, not after.

When to start the conversation

The right answer for most owners is: earlier than feels necessary. A three-to-five year runway allows time to execute on the structural moves, run the numbers on different deal scenarios, and adjust if the timeline shifts.

A one-year timeline is not nothing — installment sale structure, residency review, and retirement account sequencing can still help. But the biggest opportunities, QSBS eligibility, built-in gains period management, and long-term entity positioning, require more time than most owners realize they have.

If you have a business worth selling and no exit plan in place, the best time to start is now.