When To Start Your Business Exit Plan

Most business owners aren’t planning to stay with their businesses until they drop. Most want an exit plan. But when is the best time to start working on that plan?

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The answer is different for everybody, but an article in Forbes suggests that it is never too early to start thinking about it. In fact, exit planning should start 10 years before you plan to get out, it says.

To save on taxes, a business owner who has converted from C Corp to S Corp filing status should wait 10 years before selling. Ten years after conversion, the built-in gain tax no longer applies.

Also, if the business owner is planning on a family succession, the children need adequate time to learn the business. The owner also needs time to come up with other retirement income sources.

Some owners can do their exit planning in five years, others in three and others in one, according to the article. It depends on their circumstances.

Issues to be considered are tax considerations, cash flow, whether capital improvements are needed and whether the business needs to show better earnings.

In any case, it will take at least a year to find a broker to put the business on the market and execute a sale. It may take that much time for the buyer to arrange for financing as well. And it can take at least a year to arrange selling the business to its employees, if that is the route the owner wants to take.

For these concrete reasons, it is a good idea to start exit planning as early as possible. Other reasons include the fact that we don’t always get to exit on our own terms, as situations change. People get sick. They die.

Best to have the exit plan in the works — if that’s what you are thinking about — just in case.

If you are thinking of selling your business, feel free to contact us at (626) 696-3145 for a consultation.

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