For entrepreneurs approaching a business sale or liquidity event, few things are more valuable than time. Planning even 12 to 24 months in advance can materially affect how much of the sale proceeds stay in your pocket and how well those proceeds support your long-term goals.
In our work with owners, we’ve seen that too many strategic planning opportunities disappear once a Letter of Intent (LOI) is signed. With the pace of M&A activity holding strong in early 2025 and capital gains tax rates remaining top-of-mind, now is the time for proactive preparation.
The Power of Early Planning
The mechanics of selling a business are complex. Legal, financial, and emotional dynamics converge quickly and often unexpectedly. For high-net worth owners, the stakes are even higher because the potential value unlocked in a sale is often tied directly to personal and family wealth.
Before LOI is signed, owners still have flexibility to shape the sale and manage taxes. After a LOI, options narrow dramatically. Therefore, it’s best to view exit planning as a multi-year effort rather than a last-minute checklist.
Here are some of the tools and strategies that can be put in motion when planning:
Installment Sales and Opportunity Zone Reinvestment:
Structuring the sale as an installment sale allows the seller to spread the capital gains over multiple years, deferring taxes and smoothing income. This strategy is particularly valuable when the sale amount pushes the seller into a higher tax bracket in the year of sale.
Pre-Sale Gifting to Irrevocable Trusts:
Gifting shares of the business to an irrevocable trust before the business is under LOI can shift future appreciation out of the owner’s estate. This means that not only are the gifted shares potentially exempt from estate tax, but all the appreciation realized through the sale is removed from the taxable estate as well.
This strategy is particularly powerful when:
– Owners have already used some of their estate tax exemption
– There’s a desire to support children or future generations
– The sale valuation is expected to rise meaningfully
Once the LOI is signed, the IRS may deem the gift as a “step transaction”, effectively taxing the owner on the full value. Timing matters.
Charitable Planning with DAFs and CRTs: For philanthropically inclined business owners, charitable tools can offset tax liability while supporting causes they care about.
– Donor-Advised Funds (DAFs): A portion of business interests can be contributed to a DAF prior to sale, allowing the owner to deduct the value and direct grants in future years.
– Charitable Remainder Trusts (CRTs): Business interests contributed to a CRT allow for a partial tax deduction now, the deferral of capital gains, and lifetime income distributions to the donor.
Both tools must be executed before a binding agreement is in place.
Coordinate Across Your Advisory Team
Selling a business touches legal, tax, financial, and emotional domains. Owners need a collaborative team:
– Attorney: For trust documents, sale terms, and estate protection
– CPA: to model tax implications and run scenario analysis
– Wealth Advisor: To align sale proceeds with long-term goals
The earlier this team is assembled, the more value they can bring. Planning opportunities missed cannot be re-captured after the deal is done.
A Word on Business Valuation
Another advantage of early planning is the ability to conduct a third-party business valuation ahead of the sale process. This provides:
– A defensible basis for gifts or charitable transfers
– A tool for better negotiating with potential buyers
– A baseline for estate planning purposes
Too often, owners rely on ballpark estimates that don’t hold up under scrutiny. A formal valuation builds clarity and leverage.
What You Can Do Now
If a sale is even remotely on the horizon within the next two years:
– Begin conversations with your attorney and wealth advisor
– Explore trusts or charitable tools before a LOI is drafted
– Review your estate plan and tax strategy for alignment
– Have your business valued now to identify potential gaps or opportunities
The best time to plan for a business sale is long before the first buyer shows interest. The second-best time is TODAY!
Final Thought
Owners spend a lifetime building their businesses. Selling should reflect that same level of intention and care. Whether the goal is legacy, liquidity, or both.
Bringing your advisory team together now can make the difference between a good sale and a great one.