Table of Contents

Introduction

You've spent years: maybe decades: building your business from the ground up. Late nights, early mornings, and countless sacrifices have brought you to this point. Now, you're thinking about the next chapter, and that means figuring out how to exit gracefully while protecting everything you've built.

Here's the reality: according to the Exit Planning Institute, approximately 80% of businesses listed for sale never actually sell. The primary reason? Lack of preparation. Business owners often wait until they're burned out or facing health issues before thinking about succession, leaving them with limited options and unfavorable terms.

At Davies Wealth Management, we work with business owners and founders to navigate these complex transitions. Whether you're five years out from selling or already fielding offers, these five keys will help you create a succession plan that maximizes your business's value and sets you up for financial success in your next chapter.

Key 1: Start Planning Early: Years Before You're Ready to Exit

The biggest mistake business owners make? Waiting too long to start the succession planning process.

Ideally, you should begin thinking about your exit strategy three to five years before you actually want to leave. This timeline gives you room to:

  • Optimize your business operations for maximum value
  • Identify and develop potential internal successors
  • Address any financial or legal issues that could derail a sale
  • Build relationships with potential buyers or strategic partners

Starting early transforms succession planning from a reactive scramble into a proactive strategy. You'll have time to make your business less dependent on you personally: a critical factor that buyers evaluate heavily. A business that runs smoothly without its founder is worth significantly more than one where the owner is the linchpin of every decision.

Make succession planning an ongoing conversation, not a one-time event. Review your plan annually and adjust as market conditions, your personal goals, and your business circumstances evolve.

Organized workspace with calendar and planning documents symbolizing early succession planning for business owners

Key 2: Get an Accurate Business Valuation

You can't plan an effective exit without knowing what your business is actually worth. And here's where many founders get tripped up: the emotional value you place on your business rarely aligns with its market value.

A professional business valuation considers multiple factors:

  • Revenue and profitability trends over the past three to five years
  • Industry multiples and comparable sales data
  • Asset values including equipment, real estate, and intellectual property
  • Customer concentration risk (if 40% of your revenue comes from one client, that's a red flag)
  • Growth potential and market positioning
  • Quality of your management team and operational systems

Most small to mid-sized businesses sell for somewhere between 2x to 6x their annual EBITDA (earnings before interest, taxes, depreciation, and amortization), though this varies dramatically by industry. A software company with recurring revenue might command 8x or higher, while a traditional retail business might struggle to hit 3x.

Getting a valuation isn't just about setting a sale price: it's about identifying areas where you can increase value before going to market. If your valuation reveals that customer concentration is dragging down your multiple, you have time to diversify your client base before listing.

Work with a certified business appraiser or a financial advisor experienced in business transitions to get an objective assessment. The investment typically ranges from $5,000 to $20,000 depending on complexity, but it's money well spent.

Key 3: Weigh Internal vs. External Sale Options

When it comes to succession, you have two primary paths: sell to someone inside your organization or sell to an outside party. Each approach has distinct advantages and challenges.

Internal Sales

Selling to employees, family members, or existing partners often provides a smoother transition. The buyer already understands your business, your culture, and your customers. Common internal sale structures include:

  • Management buyouts (MBOs): Your leadership team purchases the business, often with seller financing
  • Employee Stock Ownership Plans (ESOPs): A tax-advantaged structure where employees gradually acquire ownership
  • Family succession: Transferring the business to children or other relatives

The trade-off? Internal buyers typically have less capital available, which may mean accepting a lower price or financing a significant portion of the sale yourself. You might receive 20-30% of the purchase price upfront, with the remainder paid over five to ten years.

External Sales

Selling to an outside party: whether a strategic acquirer, private equity firm, or individual buyer: often yields a higher purchase price and cleaner exit. Strategic buyers who see synergies with their existing operations may pay a premium of 20-40% above market value.

However, external sales typically involve:

  • Longer due diligence periods (90-180 days is common)
  • More complex negotiations and legal documentation
  • Potential culture clashes that affect your employees post-sale
  • Earnout provisions that tie part of your payment to future performance

Neither option is inherently better: the right choice depends on your financial needs, your attachment to the business's legacy, and the realistic capabilities of potential internal successors.

Diverging paths representing internal and external business sale options in succession planning decisions

Key 4: Understand the Tax Implications of Your Liquidity Event

Here's where many business owners leave significant money on the table. The difference between a well-structured sale and a poorly planned one can mean hundreds of thousands of dollars in unnecessary taxes.

Capital Gains Considerations

When you sell your business, you'll typically face long-term capital gains taxes on the profit. As of 2026, federal long-term capital gains rates range from 0% to 20% depending on your income level, with an additional 3.8% Net Investment Income Tax for high earners. State taxes add another layer: though if you're a Florida resident, you benefit from no state income tax on the gain.

Asset Sale vs. Stock Sale

The structure of your deal dramatically impacts your tax liability:

  • Stock sales (selling your ownership shares) generally result in more favorable capital gains treatment for sellers
  • Asset sales (selling the business's individual assets) often benefit buyers through depreciation deductions, but can create ordinary income tax exposure for sellers on certain assets

Buyers typically prefer asset sales; sellers typically prefer stock sales. This creates a negotiation point where you might accept a slightly lower price in exchange for more favorable tax treatment.

Tax Planning Strategies

Several strategies can minimize your tax burden when executed properly:

  • Qualified Small Business Stock (QSBS) exclusion: If your company qualifies, you may exclude up to $10 million in gains from federal taxes
  • Installment sales: Spreading the gain over multiple years can keep you in lower tax brackets
  • Charitable planning: Donating appreciated stock before the sale or establishing a Charitable Remainder Trust
  • Opportunity Zone investments: Deferring and potentially reducing gains by investing proceeds in qualified opportunity zones

The key is working with qualified tax and financial advisors before you sign a letter of intent. Once the deal terms are set, your flexibility diminishes significantly. We discuss these strategies regularly on the Davies Wealth Management podcast: it's worth a listen if you're serious about maximizing your after-tax proceeds.

Key 5: Develop and Document Your Formal Succession Plan

A succession plan that exists only in your head isn't really a plan: it's a hope. Documenting your strategy creates accountability, facilitates communication, and ensures continuity even if unexpected circumstances arise.

Your formal succession plan should include:

Leadership Transition Framework

Identify which roles are critical for business continuity and who will fill them. This goes beyond just naming your replacement: consider department heads, key salespeople, and operational managers whose departure could disrupt the business.

Knowledge Transfer Protocols

Your institutional knowledge: relationships, processes, and insights that aren't written down anywhere: represents significant value. Create systems for transferring this knowledge to successors through:

  • Documented standard operating procedures
  • Mentorship programs pairing successors with experienced leaders
  • Customer introduction schedules
  • Vendor and partner relationship handoffs

Communication Strategy

Determine how and when you'll inform employees, customers, vendors, and other stakeholders about the transition. Poor communication breeds uncertainty, and uncertainty leads to departures and lost business. A thoughtful rollout plan protects value during the vulnerable transition period.

Emergency Provisions

What happens if you're suddenly unable to run the business due to illness or accident? Your plan should address emergency succession with interim leaders identified and empowered to act.

Notebook with flowcharts and building blocks illustrating structured business succession and documentation

Putting It All Together

Selling your business represents one of the most significant financial events of your lifetime. The decisions you make during this process will impact your retirement security, your legacy, and the futures of employees who have helped build your company.

Start early. Get objective valuations. Evaluate all your options. Plan for taxes strategically. Document everything.

At Davies Wealth Management, we specialize in helping business owners navigate these transitions with confidence. From pre-sale planning through post-sale wealth management, we provide the comprehensive guidance you need to exit gracefully and enter your next chapter on solid financial footing.

Ready to start planning your exit strategy? Connect with our team to discuss how we can help you maximize the value of your life's work.