I retired in 2008 after selling a 200-employee company. Shortly after that I founded Beacon Exit Planning to help guide owners through this challenging exit process. I proceeded to educate myself in the technical aspects of closely held businesses, passed my certification and moved on to my third career at the tender age of 63.

My training focused on private capital markets, understanding the owners’ goals, measuring their personal, financial and business wealth, determining their value gap and then evaluating the various exit paths, both pre- and post-tax.

To retire, baby boomer business owners in their 50s and 60s need to cash out, replace their income and not outlive their money in retirement. Owners need a plan to unlock their largest asset, their business, trapped in their illiquid business amounting to over 70 percent of their wealth. The key is to figure out the number needed from the business, and exit without being clobbered by taxes that can consume 0-50 percent of their harvest.

Time is your best friend in this process as the plan is only the beginning. Time gives you the liberty of tapping into tax efficient methods of growing your savings with Uncle Sam’s help. This savings reduces the number needed from the company to achieve your retirement goal.

Common Themes

During the last several years of dealing with business owners and assisting with their planning, Beacon has been witness to several recurring observations. Many of these observations occurred throughout the country and were evident in businesses ranging from $4 million to more than $90 million dollars in revenue:

  • Advisers must invest the time to truly understand an owner’s goals and motivations in order to truly support their client’s chosen exiting path.
  • Most owners have more than 70 percent of their wealth trapped inside their business.
  • Most owners are not emotionally ready to exit their business and continually mention their exit date as “five” years.
  • Many owners’ income needs are relevant to the size of their business, and most have not saved enough, no matter how much they make.
  • Beacon constantly finds mistakes with buy-sell agreements and the coordination of financial, legal and insurance documents, which lands the owner, spouse or business with unintended consequences and tax obligations. Many are underfunded.
  • Planning an exit can take three to six months of preparation, but the execution can take one to three years.
  • Owners mistakenly think they can just plan their exit a few years from their target exit date. Those who plan early and get their business ready for the transition will achieve greater success. Time is your best friend for saving, succession and execution when the plan is set in motion earlier rather than later.
  • Most owners have not prepared the next generation for the transfer and leadership.
  • Timing and effective tax and financial planning will provide business owners with the greatest leverage in meeting their financial goals while minimizing the fear of outliving their money.

Consider these statistics:

“At any given time, 40 percent of U.S. businesses are facing the transfer of ownership issue. The primary cause for failure … is the lack of planning.”
–Small Business Administration

“Seventy-five percent of the typical business owner’s net worth is tied up in their company. Only 22 percent of those owners have reported doing any succession planning.”
– Price Waterhouse Coopers

Owners need to understand that exit planning does not simply revolve around the transaction of monetizing the business value that is trapped in a business. Exit planning should start much sooner by implementing annual tax-saving strategies to maximize your savings outside the business and protecting this valuable asset from creditors/predators, key employee departures and other nuisances that can detract value from your wealth.

This short article focuses on several recent problems we encountered with our clients and the “nontraditional” tools that we recommended to provide the solutions to those problems while getting our owner clients closer to reducing the value gap and making them less dependent on the business value for their post-exit lifestyle.

What Do I Do with $300,000 Before Year End?

We met for dinner the evening before presenting our final version of an exit plan to the owner of a $3 million dollar business. He shared that he was having a great year and would have to cut the government a check for approximately $300,000. We asked this owner a few questions about his business and some of the benefits that the company provided. After several minutes of discussions, we were able to provide this owner with a solution that would provide him with a several hundred thousand dollar deduction that would allow him to keep in excess of 90 percent of the deduction and reduce the tax obligation by approximately 75 percent.

Are you saying I can expense $1.2 million today, not get taxed on it and eventually be taxed at capital gains rates? We delivered an exit plan to another owner of a company valued at $14 million. After our meeting, he was overwhelmed by the potential capital gain tax exposure he and his company were facing upon execution of the transition. Beacon was able to provide a resolution to this tax issue with a tool that eliminated all of the capital gain and, therefore, eliminated the capital gain tax.

We then initiated another tool for increased savings outside the company on a tax-efficient basis. The strategy provided the owner with many benefits: It protected the liquid wealth from lawsuits, reduced the estate tax exposure and artificially reduced the value of the company so the successors could buy in at a reduced rate.

The key point is that the owner was prefunding his exit and converting the illiquid value of his company into liquid assets while he was still in control. If properly structured, this strategy could also provide a basis for funding life insurance policies for the owners on a pre-tax basis. I’m sure you will agree that this is a powerful tool and one that every business owner should have in his tool box.

Can I prefund the buy-out, gold handcuff my key manager and keep the money if he decides to leave? Protecting the business owners’ wealth also means protecting the value of their company. One area that can have a drastic effect on the value of the company is the role that key employees play in the business.

We were recently approached by a business owner of a mid-size manufacturing/distribution company who realized that if two of his key employees left the company it would have a drastic effect on not only day-to-day operations of the business but also his ability to maximize value when he wanted to exit the company. He therefore saw the need to “anchor” his key employees to the business as a means of protecting his wealth.

We recommended a strategy that would reward the employees for their efforts while making it difficult for them to walk away from the business. This strategy would allow the owner to “handcuff” the employees to the business but also to hedge to their departure. In addition, the strategy could be tied into a stock purchase agreement should the owner choose to sell to his key employees. The reward could be used as a down payment for the purchase of the business and would be forfeited if they leave.


As you can see from these three examples, exit planning requires much more planning beyond the transaction itself. It’s important to know what tools you have in your toolbox in order to maximize your wealth during the working years, minimize your dependency on your business during your exiting years, and eliminate the fear of outliving your money.

In each of the examples noted above time is the owner’s best friend. It allows each owner to not only develop a strategy for monetizing the business but also to utilize tools that will decrease taxes, increase savings, and grow and protect the value of the business.

 These are also great examples of why, when people ask me when they should start planning for their exit, I always say, “AS SOON AS YOU START YOUR BUSINESS!”