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How San Diego Business Owners Can Navigate Taxes and Exit Planning Before Retirement

30 Nov 2023 by: CCMI 

From day one, business owners should begin planning their exit from their companies, which may be surprising or sound premature for new entrepreneurs. Over the years of working with business owners at CCMI, we’ve witnessed the benefits of proactive exit planning and its impact on a business’s value and the owner’s ability to reach their personal and professional goals. 

However, from what we’ve observed, this planning doesn’t always happen. Business owners have a unique vision, are driven, and spend many years and resources investing in their businesses. Fully focused on business success, they often struggle to plan for their own retirement, transfer wealth, and understand the financial implications of their decisions. Our extensive expertise allows us to recognize gaps in their planning and assist business owners transitioning to retirement while identifying tax savings opportunities and determining the best path forward.

Your business’s type, size, and goals will significantly affect your approach. Let’s explore various considerations and tax strategies business owners can employ as they approach retirement and prepare for the sale of their business.

When Should Business Owners Begin Planning for Retirement?

Ideally, every business owner should begin thinking about their long-term goals and retirement as soon as they start their business or experience their first taste of financial success. Early planning can guide your growth efforts for maximum value and facilitate a smooth transition into retirement. Giving yourself enough runway as a business owner is critical, laying the foundation for a seamless sale process and enabling specific tax strategies. Delaying your planning may limit your tax options, hinder your retirement timeline, and negatively affect the value of your business. A comprehensive guide to retirement planning includes integrating your business, personal finances, and goals, which we explore further in this blog post.

When Should Business Owners Engage a Financial Advisor?

As with many financial plans, there’s no such thing as starting too early. However, suppose you’ve been heavily involved in operating your business and have put your personal financial plan on the back burner. In that case, we recommend consulting with a retirement planning professional at least five or six years from your target retirement date. This time frame generally gives you ample time to assess your situation and business value and explore suitable strategies. Here are more tips and steps you can take as your retirement nears, especially if you plan to retire in San Diego

Remember, in financial planning, time is your friend, so engaging a financial advisor as early as possible may provide additional value and options and inform your decisions as you navigate your business, personal objectives, and exit. For example, is it a good time to sell your business and exit or should you continue growing your business?

Further, we suggest partnering with an advisor before accepting sale offers or signing agreements. These are pivotal moments, and waiting until negotiations could result in missed savings, unforeseen tax consequences, or not capturing enough funds to reach your retirement goals.

Why Your Business Type Matters for Your Retirement Plan

Working with an advisor can also offer insights into various factors you may have yet to consider that could affect your exit strategy and retirement goals. For example, there are different tax strategies and structuring options linked to your business’s type, whether you own real estate, are a service provider, are in manufacturing, and more. A competent financial advisor will understand these nuances and the relationship between your business type and your decisions. 

CCMI Client Story

One of our clients and several family members owned a general store encompassing several real estate properties. When they decided to sell, half of the owners wanted to delay capital gains and reinvest while the other half wanted to pay capital gains taxes and walk away from the transaction. The existing real estate structure left no middle ground, and the family was required to agree unanimously. They decided to pay the tax.

Had the client engaged us early on, we could have recommended more flexible options, such as a new structure that facilitated a 1031 exchange for some owners while offering an opportunity to pay taxes for others. We later helped come up with the structure to retitle real estate with the same family a few years before they decided to sell additional real estate, highlighting the importance of early engagement with a financial advisor.

Why the Type of Business Sale Matters for Your Retirement Plan

The type of business sale you choose and your potential buyer also play significant roles in exiting your company. Again, every type of business sale has different requirements, tax strategies, and implications. Let’s discuss the two primary types of sales and the various options they encompass:

Who is Your Buyer?

Internal Sale

  • Intergenerational—Passing the business to a family member
  • Management buyout—Transferring all or a portion ownership to current leaders
  • Sale to current partner for multi-owner businesses—Transferring ownership to an existing partner
  • Employee stock ownership plan (ESOP)—Employing a qualified defined contribution benefit plan for employees designed to invest primarily in the sponsoring employer’s stock, a tax-savings option that may be suitable for a business with a strong management team and limited buyer options 

External Sale

  • Sale to a third party—A full or partial sale for liquidity to a strategic buyer, financial buyer, or private equity group with a sale process that may be negotiated, a controlled auction, or an unsolicited offer 
  • Initial Public Offering (IPO)—Sell the business to the public for a potential profit, an option that is not realistically available to most small and middle-market companies
  • Recapitalization—A lender or equity investor adds capital to fund the company’s balance sheet and acts as a new partner in the business, with a minority or majority interest
  • Orderly liquidation—A quick and organized process to close the business if the asset values exceed the ability of the company to produce the income required to support an investment 

Which exit is right for you? Explore more of the benefits and disadvantages of each exit type in our blog post, 8 Business Exit Strategies for San Diego Business Owners.

What Are the Tax Implications of Sale of Assets or Stock?

If you decide to sell, your decision will heavily depend on your business’s legal structure, your goals, and potential benefits and negotiating leverage. There are also tax implications to consider. 

  • Sale of Assets: When selling assets, such as equipment or inventory, a company will sell all or some of its assets at the fair market value to a buyer. The buyer and seller will choose which assets will be sold and everything will be outlined in the final agreement, providing a high level of customization. A disadvantage is that the seller may still retain liability of the assets sold and be subject to double taxation—a capital gains tax if the assets have appreciated and once again when the assets are sold.
  • Sale of Stock: Selling stock or equity is typically more straightforward than selling assets because assets and liabilities are transferred to the buyer. When selling stock, shareholders are generally responsible for gains or losses, preventing double taxation for the seller. Liabilities are also transferred to the buyer, which may help a seller manage their risk.
  • Market Considerations: Business owners should also consider market conditions with either of these transactions and how appreciated stock or assets could affect their negotiation terms, taxes, or the sale’s timing.

There are other ways to structure a transfer of assets or ownership that provide different benefits and may minimize tax implications. For example, a family business planning an intergenerational transfer may want to reduce estate taxes through a self-canceling note or intentionally defective grantor trust. Learn more about other tax strategies in our blog post, Tax Planning for Ultra High Net Worth Individuals and Families. Other business owners may want to delay paying capital gains or reduce federal and state taxation, implementing agreement terms that support that. 

Regardless of your decision, a tax, legal, and financial advisor can help outline your options and explain their consequences and benefits to determine your path.

The Benefits of Working with a Certified Exit Planning Advisor (CEPA)

In addition to the benefits of partnering with a financial advisor, a Certified Exit Planning Advisor  (CEPA) brings specialized expertise and tools to the table, focusing on helping business owners maximize value, minimize taxes, and navigate the transition from owner to retiree. 

CEPAs understand the various business stages and can share insights through the business owner’s lifecycle. These insights can shed light on an owner’s blind spots, help business owners proactively increase business value thereby capturing more in a sale, and provide a tangible plan that outlines what a business owner needs to exit comfortably.

CCMI Client Stories

Nearing retirement, one of our clients, who had already signed a letter of intent (LOI) to a potential buyer, notified us that they were planning to move to Florida from California. Unfortunately, because he had already signed a LOI, several impactful tax strategies were taken off the table, such as capturing charitable tax deductions using a charitable trust. He also learned that making Florida the primary business location earlier would have saved him millions in state taxes. This story also brings up an important point about taxes related to where you live and choose to retire. Discover more cost and tax considerations and the pros and cons of retiring in San Diego in our blog post.

Here’s another example of two clients who took different paths. We helped one client determine a sale amount that aligned with his retirement goals; this amount served as a north star guiding his decisions. Throughout his business journey, we helped him evaluate his business’s value and take action to increase it, making it more attractive to potential buyers years later. As he approached retirement, he received several offers. Only when he received an offer that matched his original amount did he decide to consider the buyer and his exit seriously. 

On the other hand, our relationship with our second client began later in his entrepreneurial career. Exhausted and ready to retire after years of building up his business, he impulsively accepted an early offer. In our later assessment, we found his business was undervalued, and he could have increased its value after only a few more years in operation, capturing much more value than he did on his own.

Blind spots and significant missed opportunities like these underscore the importance of working with a professional to proactively and thoughtfully consider the intricacies of business ownership and taxes.

How CCMI Can Help Business Owners in Retirement Planning

With extensive experience working with business owners, the CCMI team is familiar with and specializes in various tax strategies and business structures. Here’s how we can help you and add value to your business journey:

  • Integrate your business into your overall financial plan beyond a sale transaction 
  • Guide you through selling a business or concentrated company stock as you transition into financial independence
  • Manage your liquid assets to diversify assets and minimize your tax burden
  • Design tax-advantaged action plans to meet your goals of maximizing what you keep and minimizing your tax liability
  • Collaborate with your team of professionals to draft succession, estate, and business continuity plans to ensure your safety net is in place
  • Adapt your evolving insurance needs as your assets grow
  • Consolidate your investment accounts for comprehensive and centralized management

Further, as your business matures, your financial stakes become more complex. Drawing from our entrepreneurial experience, we understand the unique challenges you encounter daily. We can help you develop long-term plans that thoughtfully integrate the value of your business, your high-net-worth accounts, your succession plan, factors specific to a San Diego retirement, and your executive benefits and stock options. 

When you’re ready to transition, contact our team and we’ll guide you in taking strategic actions to preserve your life’s work without compromising your vision or goals for the future.


PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at https://myccmi.com/important-disclosures/




CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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