Selling Your Business – Planning Issues for Business Owners

Written by: Jon Snare CFA, CFP® | March 18, 2022

Selling a business can be one of the most rewarding, yet stressful, events in the life of a business owner. After a lifetime, or perhaps several generations of work, selling a business can represent the culmination of a career that allows the business owner to transition to their next life stage. The liquidity generated from the sale can allow families to accomplish goals previously put on hold due to the demands of running the business. It can be an exciting and fulfilling time, but most importantly – it is a time to plan.

While many business owners work with outside advisors to help them sell the business, planning for the personal financial impact of the sale is equally important – both before and after the transaction. This guide outlines some of the issues business owners should consider for their personal financial planning.

Pre-Transaction Tax Planning

Depending on your goals and how the business is structured (C Corp, S Corp, LLC, etc.), there are several strategies that a business owner can implement to realize income and / or estate tax benefits. However, one caveat is that once you sign a definitive agreement to sell the business, many of the planning opportunities are no longer available. So, if reducing or deferring income taxes or moving some of the ownership of the business out of your estate is a priority, planning typically needs to happen before a binding agreement to sell the business is established.

Here are some examples of strategies that we have seen business owners use successfully:

Gifting Shares of the Company – There are a variety of tools and techniques that allow a business owner to gift shares of their business to children, grandchildren, Trusts, or a variety of charitable vehicles. Each technique can provide either income or estate tax benefits; the optimal choice depends on the legal structure of the business and your objectives.

One example of a tool to reduce income taxes on the sale, lower your estate and provide income during retirement is to donate shares of the company to a Charitable Remainder Trust (CRT). A CRT is a split-interest trust where income from the Trust can be paid out to the donor, either for a specific period or for the life of the donor, with the remainder going to the charity of their choice. Under current tax law, the donor receives an upfront charitable deduction for the contribution to the CRT. The amount of that deduction will be determined by a combination of the fair market value of the donated assets and the size of the income distribution paid out to the donor. The Trust itself is a tax-exempt entity, so it will not owe any taxes at the time of the sale of the asset. At the end of the term of the CRT or the life of the donor, the remainder goes to charity. For assets with a very low-cost basis, the tax savings from eliminating the capital gain can be significant, plus the charitable deduction will help offset other gains from the transaction. Additionally, the amount contributed to the CRT will be removed from your estate. And the distributions from the CRT can help replace previous cash flow from the business.

QSBS – One feature of the tax code that may be helpful to investigate to see if it applies is the Qualified Small Business Stock exemption, generally known as QSBS. This is a provision of the tax code that allows the owners of a “Small Business” as defined by the IRS rules, to exclude up to 100% of the federal capital gains tax, up to a maximum of $10 million, from the sale of the company stock. The rules to qualify for the exemption are fairly involved, but if you do qualify it can be a tremendous tax advantage.

These are just a few examples of planning options; the key is to engage in this planning before any sales agreement is put in writing.

Cash Flow and Retirement Planning

While they were working, most business owners generated the cash flow they needed for living expenses through salary or profit distributions from their company. Once the business is sold, replacing that cash flow becomes paramount. In cases where a business is purchased by Private Equity funds, the former owner is often offered an earn-out or a retention bonus to stay and run the company for 3-5 years. Since the former owner typically also draws a salary, the need to replace cash flow immediately can be eliminated or at least reduced. On the other hand, if you are walking away once the transaction closes, understanding how to replace your prior cash flow is an important part of the planning process.

Managing Cash Proceeds

Often, owners have virtually all of their net worth tied up in their business. They frequently have reinvested most of their profits to keep the business growing over time. Other than residential real estate, they may not have many assets outside of the business. After selling their business and generating millions of dollars in cash, they need to invest but may have little experience or know-how. Importantly, this cash influx is usually a once-in-a-lifetime opportunity that leaves little room for error.

You may have a variety of goals and a wish list for the proceeds of the sale, including buying a second home or a yacht as
a reward for all your hard work. Some business owners use their cash to start another business. But if the goal is to use the money to build an investment portfolio that will provide cash flow for retirement, building a solid plan is extremely important.

Many business owners are natural risk-takers; being an entrepreneur requires a certain level of risk tolerance. When we work with business owners, we gauge how much risk is required to reach your goals. By reviewing your objectives through a comprehensive analysis, we can help you design and implement an investment portfolio that will be best positioned to reach your goals and undertake the appropriate level of risk. We strongly believe that a thoughtful, deliberate plan for investing your sale proceeds is the best course.

Once an owner does sell their business, they will often be able to invest in strategies that were previously unattainable. If the proceeds are sufficient to meet the Qualified Purchaser standard ($5+ million of investable assets) or even an Accredited Investor standard ($1+ million of investable assets), individuals can invest in a variety of alternative investments that are not available to most retail investors. Vehicles such as Private Equity, Hedge Funds, Private Debt, and Real Estate are all areas that can help build a diversified portfolio with sufficient cash flow to meet your goals.

Estate Tax Planning

A liquidity event like the sale of a business does not necessarily change the size of your estate, but it does change its nature. The value of a private business is always somewhat imprecise. Since it is not publicly traded, the value is open to interpretation. Estate planning for owners of private businesses often entails purchasing enough life insurance to provide liquidity if the owner dies. If the value of the business is high enough to generate estate taxes but still privately held, the family of the owner can face difficult choices regarding how to pay their estate taxes. The worst-case scenario is being forced into selling the business at a fire sale price.

Once the business is sold, however, the value of the estate becomes more defined and more liquid – and life insurance may not be as big of a need as before.

There are a variety of strategies that the business owner can use to reduce the size of their potential estate tax liability, both before and after the sale. Reviewing your estate plan after the transaction closes can be very important in minimizing future estate taxes.

Health Insurance and Benefits Replacement

While taxes and investment of the proceeds are frequently the focus during the sale of a business, there are other key issues to address. If the business was large and successful enough to be sold for a significant price, it probably included a full range of benefits, like health insurance and a 401(k) or other retirement plans. If the former owner stays on and continues running the business, they will usually be able to remain on the group health insurance plan or join the group plan of the buyer. However, if their employment ends when the sale closes, they often lose group health insurance coverage. With the advent of the Affordable Care Act (ACA), the market for individual health insurance policies has changed significantly. In many states, the only viable option to purchase an individual policy is through the ACA marketplaces. Many of our clients have found those policies expensive and lacking the benefits they are accustomed to. If you think you will not be covered by group health insurance and you are under 65 (and thus ineligible for Medicare), don’t wait to investigate your health insurance options.

Likewise, if you are stepping away from the business completely, you may not be able or want to continue to participate in your former company’s 401K plan. Generally, you will have the option of rolling the balance of your 401k plan into an IRA. If there were other retirement plans in place, like a Defined Benefit (pension) plan, you will need to review the steps necessary to begin taking distributions or determine other options.

Emotional Impact

We have worked with many owners over the years who have sold their businesses. The process can elicit a wide range of emotions – from the joy of being able to retire with significant assets after years of working to a feeling that they are losing part of their identity and purpose in life. Bordeaux Wealth Advisors understands all aspects of a business sale and can help clients address this significant life transition.

Client Case Study

Steve was a successful business owner who took over the family business after the death of his father. While he ran the company on a day-to-day basis, his mother still owned a significant portion of the business. For over 25 years, the business enjoyed great success and consistent growth. When the family eventually decided to sell the business, Bordeaux Wealth Advisors reached out to the client’s CPA and Attorney and worked with them directly, creating a plan of action to satisfy the family’s goals. For both Steve and his mother, we made sure to provide the oversight that kept all parties working in unison to achieve the family’s objectives.

Bordeaux Wealth Advisors helped the family by discussing many potential strategies and how to implement them, such as:

  • Establishing trusts to hold assets for various family members and to accomplish estate planning goals as part of the pre-transaction planning.
  • Setting up charitable vehicles to help the family accomplish their philanthropic goals and reduce the tax impact of the sale.
  • Providing comprehensive investment management services to manage the assets in the various trusts post-transaction.

Additionally, the family’s Trusts had differing beneficiaries and goals, so each required a unique investment objective and strategy. Replacing income that was previously generated by the business was also an important goal for family members. Bordeaux’s investment strategy considered each of their unique income needs.


Selling a successful business can be an exciting and fulfilling experience, but there are many considerations and careful planning is essential. Having qualified advisors in place can help to ensure that your financial and personal goals are met – both now and in the future.

To learn more about how Bordeaux Wealth Advisors can assist you, visit or call
425-389-4361. We manage the complexities of wealth so you don’t have to.


Important Disclosures

The material has been gathered from sources believed to be reliable, however BWA cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. Investment Advisory services are offered through Bordeaux Wealth Advisors, LLC. Advisory services are only offered where Bordeaux and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.