Published on: May 21, 2026 by Craig Maternowski, CPA
Updated on: May 21, 2026
For many business owners, the business isn’t only their livelihood; it’s also one of their largest personal assets. In fact, for a typical business owner, the business may represent a significant portion of their overall net worth. That makes exit planning one of the most important long-term planning conversations an owner can have.
Yet many owners wait until they are close to retirement, receive an unexpected offer, or face a major life change before they begin thinking seriously about transition. By that point, options may be limited. A successful exit often requires years of preparation, not just a decision to sell.
Exit planning is about much more than choosing a successor or finding a buyer. It’s the process of preparing the business, the owner’s finances, and the owner’s personal life for a future transition. Done well, it can help build business value today while giving the owner more flexibility when the time comes to step away.
Exit planning is the process of creating a business that is transferable. That means the company can continue operating, producing cash flow, and creating value without being overly dependent on the owner.
For many small and mid-sized businesses, value is not found only in equipment, inventory, or real estate. A large portion of value can be tied to intangible factors, including the strength of the team, customer relationships, business processes, and company culture.
These value drivers are often described through the “4 Cs”:
| Human Capital | the strength of your staff and management team |
| Structural Capital | the strength of your processes, procedures, systems, and strategy |
| Customer Capital | the strength of your relationships with customers and suppliers |
| Social Capital | the strength of your company culture |
These areas matter because they influence how a potential buyer, successor, lender, or investor views the business. A company with strong leadership, documented processes, diverse customers, reliable reporting, and a healthy culture will generally be more attractive than one where every major decision runs through the owner.
That’s why exit planning should begin well before an owner is ready to sell. A three-to-five-year runway is often recommended, and in some cases, planning may begin up to 10 years in advance. The goal is to get your “ducks in a row” by building value, reducing risk, and creating a company that is easier to transition.
One of the reasons advance planning matters is that business value is often tied to both earnings and the multiple applied to those earnings.
A common measurement used in business valuation is EBITDA, which stands for earnings before interest, income tax, depreciation, and amortization. EBITDA gives buyers and advisors a way to evaluate operating performance.
But earnings are only part of the equation. The multiple applied to those earnings can vary based on the strength of both tangible and intangible factors. A business with clean financials, strong management, diversified customers, dependable systems, and reduced owner dependence may receive a stronger multiple than a business with unresolved risk factors.
In other words, exit planning isn’t only about preparing to leave. It’s also good business strategy. Improvements made today can strengthen operations, improve profitability, and increase the range of options available in the future.
There is no single right way to exit a business. The best path depends on the owner’s goals, the company’s readiness, the leadership team, family dynamics, financial needs, and market conditions.
Let’s take a look at the most common exit paths.
A third-party sale may involve a strategic buyer or a financial buyer.
This path can be a good fit when the owner’s primary objective is maximizing valuation and liquidity, and when the business can stand on its own without heavy owner involvement.
Strategic buyers may be interested in synergies, such as access to new customers, products, talent, or markets. Financial buyers, such as private equity groups, may view the business as a platform investment or an add-on to an existing portfolio company.
Deal structures can vary. Some may involve cash at closing, while others may include rollover equity, earnouts, or continued involvement from the seller. Owners should also consider what life after closing may look like. A strategic buyer may integrate the company into a larger organization, while a financial buyer may preserve more operational independence, depending on the deal.
An internal transfer may be a good fit when continuity and legacy matter, and when there is a capable next generation of leadership inside the company.
This approach often takes longer than a third-party sale. Liquidity may be staged over time, and the transaction may depend heavily on the business’s cash flow to support debt or seller financing.
In some cases, the overall sales price may be lower than what could be achieved through a third-party sale, but the tradeoff may be greater continuity for employees, customers, and the company’s culture.
Family succession can be a strong option when there is both willing and capable family leadership.
However, this path requires thoughtful planning. Ownership, management, family relationships, estate planning, and gift planning can all intersect. Governance structures, such as boards or advisory boards, can play an important role in helping separate family dynamics from business decisions.
A family transition should not be based only on the desire to keep the business in the family. The next generation must be prepared to lead, and the business must be financially able to support the transition.
An Employee Stock Ownership Plan, or ESOP, may be a good fit for companies with stable cash flow, strong culture, and owners who value employee continuity and potential tax efficiency.
ESOPs often work best in lower-growth but stable environments. They can provide a way for employees to participate in ownership while allowing the owner to transition over time. However, ESOPs involve specific financial, legal, administrative, and cash flow considerations. One area that is often underestimated is repurchase liability, which is the company’s obligation to buy back shares from employees under certain circumstances.
A partial exit or recapitalization may appeal to an owner who wants to reduce personal risk and gain some liquidity without fully stepping away.
This approach sits between “keep everything” and “sell everything.” The owner may sell a minority or majority stake while retaining equity and participating in future upside. It is often used as a “first exit,” with the possibility of a second sale later.
Partner selection matters greatly in this type of transaction. Owners should look closely at alignment around growth strategy, decision-making, culture, and the timing of a future exit.
A strong exit plan follows two paths at the same time: the personal and financial path, and the business path.
Both paths should involve a strong team of advisors. Depending on the situation, that team may include a CPA, attorney, financial planner, business broker, investment banker, valuation specialist, and other advisors.
The personal and financial side of exit planning starts with a simple but powerful question: What do you need the business to do for you?
Many owners have a rough idea of what they think the business is worth, but that doesn’t always translate into what they will actually receive after taxes, fees, debt payoff, and transaction costs. Owners should focus on net proceeds, not just enterprise value.
A financial planner can help determine how much the owner needs to support retirement or the next stage of life. This may include evaluating expected annual spending, investment assets outside the business, risk tolerance, estate planning goals, and wealth transfer plans.
One planning concept to consider is the “Rule of 25.” If an owner needs $400,000 per year in retirement, multiplying that amount by 25 suggests a wealth goal of $10 million. From there, the owner can compare that goal to investable assets outside the business to identify the wealth gap.
For example:
| Wealth Goal – Outside Investments = Wealth Gap |
| That wealth gap represents the amount the owner may need to generate from the business transition. If the gap is not realistic based on current business value, the owner may need to rethink timing, retirement lifestyle, transaction structure, or whether to sell part of the business now and the remainder later. |
Owners should also consider what they want life to look like after the exit. Some owners look forward to retirement, travel, volunteer work, or family time. Others struggle with the identity shift from operator to investor, advisor, or retiree. Having a plan and purpose after retirement can be more important than many owners expect.
The business path focuses on preparing the company itself for transition.
Because the business may represent a large portion of the owner’s wealth, the planning process should focus on building a transferable company that can maximize value. This often involves two broad priorities: reducing risk and building value.
Reducing risk may include lowering owner dependence, diversifying the customer base, improving financial reporting, documenting procedures, strengthening management, and creating more reliable systems.
Building value may include improving EBITDA, strengthening margins, developing leadership, expanding customer relationships, and improving the intangible value drivers represented by the 4 Cs.
The stronger the business is in these areas, the more attractive it may be to buyers, successors, lenders, or investors.
Exit readiness can be evaluated across three major areas: business readiness, financial readiness, and personal readiness.
Business readiness measures how prepared the company is to transition. Common areas to assess include:
| Owner Dependence | Is the owner the primary rainmaker, decision-maker, or problem-solver? If so, that can create risk for a buyer or successor. |
| Financial Quality | Are financial statements reliable, timely, and prepared in a way that supports buyer review? Cash-basis records, inconsistent margins, and heavy add-backs can create diligence concerns. |
| Customer Concentration | Does a small number of customers drive a large share of revenue? Heavy concentration can lead to valuation discounts, earnouts, escrow requirements, or buyer hesitation. |
| Management Depth | Is there a second layer of leadership that can run the business without the owner? A shallow management team can reduce transferability. |
| Systems and Reporting | Does the business have timely, reliable KPIs and reporting tools? Weak systems can make it harder to prove performance and manage growth. |
Financial readiness focuses on whether the owner’s expected net proceeds align with personal goals.
Owners should compare expected proceeds after tax, fees, and debt payoff to lifestyle needs, wealth transfer goals, and post-exit risk tolerance. A common issue is that owners anchor their expectations to the headline enterprise value rather than the amount they may actually keep after the transaction is complete.
This distinction can significantly affect planning. A business may sell for a strong price, but taxes, transaction expenses, debt, working capital adjustments, and deal structure can all reduce the amount available to fund the owner’s next chapter.
Personal readiness is often overlooked, but it can influence whether an exit feels successful.
Owners should think through the identity shift that comes with moving from operator to investor, consultant, board member, retiree, or something else. They should also consider whether they are willing to stay involved after the transaction. Many deals require a transition period, and some buyers may expect the seller to remain involved for months or even years.
The owner’s preferred timeline also matters. An immediate exit requires a different approach than a phased transition.
The best exit windows are influenced by both internal readiness and external conditions.
Internal timing includes questions such as:
External timing includes factors such as:
Owners cannot control the market, but they can control readiness. Prepared companies have more optionality. They can respond to opportunities, delay when market conditions are unfavorable, or choose among multiple transition paths.
Exit planning is not only about leaving the business. It is about building a stronger business today while preparing for a better transition tomorrow.
For small and mid-sized business owners, the process begins with understanding personal goals, financial needs, business value, and readiness gaps. From there, owners can work with their advisory team to evaluate exit paths, strengthen value drivers, reduce risk, and create a plan that supports both the business and the owner’s future.
The earlier the planning begins, the more options the owner is likely to have when the time comes to transition.
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Craig is a Principal with SVA Certified Public Accountants and works closely with business owners and their management teams to advise them on accounting and tax issues.
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