You will leave your business. Maybe on your terms, with a check and a handshake. Maybe because of a health scare, a divorce, a burned-out Tuesday, or a client who made up 70% of your revenue deciding to go elsewhere. The only open question is whether you pick the exit or the exit picks you.
Most solo owners never write an exit plan, because it feels like planning your own funeral. It is closer to planning your own raise. A business that can be sold, handed off or shut down cleanly is worth more, causes less stress while you run it, and leaves your family with options instead of a mess.
The four ways out
1. Sell it to an outsider
A competitor, a bigger firm in your niche, or an individual buyer takes over. This gets you the most cash up front, but it is also the hardest exit for a solo operation, because buyers pay for a business that runs without you. If every client calls your cell phone, they are buying your calendar, not a company.
2. Hand it to an insider
That means a key employee, a partner, or a family member. It is usually slower and cheaper, often paid out of future profits, but it keeps the culture and the customers intact. Family handoffs have their own landmines, which we cover in Succession Planning for Family Businesses.
3. Keep it and pull cash out
Some owners never sell. They shift to a chairman role, hire a manager, and live off the profits. This works only if the business has real systems and a manager worth trusting.
4. Wind it down
Not glamorous, but legitimate. You close the doors, collect receivables, sell equipment, pay creditors, notify clients, and dissolve the entity properly. A planned wind-down beats an abandoned business with unpaid taxes and a forgotten website still collecting subscription fees.
The unplanned exits
Planned exits get the attention, but the unplanned ones cause the real damage: death, disability, a serious illness, a lawsuit, or a business partner who wants out. Ask yourself three blunt questions:
- If I were unreachable for 90 days, would anyone know how to invoice, deliver and pay the bills?
- Is there a written document that says who gets the business, or who can run it, if I cannot?
- If I have co-owners, what happens to a share when one of them dies, divorces or quits? (See Buy-Sell Agreements: The Basics.)
If you answered “no idea” to any of them, that is your first project.
Valuation basics: what is it worth?
Nobody can tell you a precise number without a real appraisal, and the final price is whatever a willing buyer and seller agree on. But you can understand how buyers think.
Earnings, not revenue
Small-business buyers typically look at seller’s discretionary earnings (SDE): profit plus the owner’s salary, owner perks, and one-off expenses. Larger or more professionally run companies are often valued on EBITDA, which is earnings before interest, taxes, depreciation and amortization. In both cases, a multiple is applied to that earnings figure.
The multiple is where the fight is
Multiples vary hugely by industry, size and risk. A tiny owner-dependent service business sits at the low end. A business with recurring revenue, documented systems, diverse customers and a team that runs it sits higher. Look up recent sale data for your industry from a business broker or appraiser rather than trusting a rule of thumb from the internet.
What lowers your price
- Owner dependence. You are the product.
- Customer concentration. One client leaves, half the revenue goes with them.
- Messy books. Cash deals, personal expenses mixed in, no clean financial statements.
- No contracts. Revenue that renews only on goodwill is hard to value.
- Undocumented processes. If the know-how lives in your head, the buyer is buying a risk.
How deals are structured
Few small sales are all cash at closing. Expect some combination of a down payment, a seller note paid over time, and possibly an earn-out tied to future performance. Many buyers also ask you to stay on for a transition period. Read the transition terms as carefully as the price.
Who to call, and when
You do not need a full team on day one, but you will eventually want four people in your corner:
- A CPA who has handled business sales, to model the tax outcome of different structures.
- An attorney to review the letter of intent, purchase agreement, non-compete terms and any seller financing.
- A business broker or M&A advisor, if you sell to an outsider. Ask how they are paid, what the engagement length is, and what they have actually sold in your size range.
- A financial planner, because the sale price is only useful if it covers the life you want after the business.
Also decide early what you want from the deal beyond money. Do you care what happens to your staff? Your name on the door? Your long-time customers? Buyers will happily accept every preference you leave unstated.
The tax question
How your sale is taxed depends on your entity type, how the purchase price is allocated among assets such as equipment, inventory and goodwill, and how long you owned what you are selling. In the US, gains on assets held longer than a year are generally taxed at long-term capital gains rates of 0%, 15% or 20% depending on income, though some portions can be taxed as ordinary income, and higher earners may owe an additional net investment income tax. In an asset sale, buyer and seller generally both report the allocation to the IRS. Get a CPA involved before you sign a letter of intent, not after. For a wider look at keeping the bill down legally, see Avoiding the Taxman.
General information, not professional tax, legal or financial advice. Rules vary by country and state.
Build a business that can be sold (even if you never sell)
The good news is that everything that raises your exit value also makes your business better to run today:
- Clean up the books. Monthly financials, separated personal and business spending, three years of tidy records.
- Write down how things work. Checklists, templates, login vaults, vendor lists. A screen-recorded walkthrough counts.
- Spread the risk. No single customer, supplier or employee should be able to sink you.
- Move toward recurring revenue. Retainers and subscriptions are worth more than one-off projects.
- Get yourself out of the daily loop. Delegate something real every quarter. It also helps with burnout.
- Get contracts in writing. Customers, key staff, leases and IP assignment.
Your timeline
Exits go better on a long runway. A rough sequence:
- 3-5 years out: Pick your preferred exit. Start cleaning financials and reducing owner dependence.
- 1-2 years out: Get an informal valuation. Talk to a CPA and an attorney. Line up a successor or a broker if needed.
- Now, whatever your age: Write down who takes over in an emergency, and where the keys, passwords and documents are.
The takeaway
You do not need a perfect exit plan today. You need a draft: your preferred exit, a rough sense of what the business earns and would sell for, an emergency note naming who steps in if you cannot, and one habit that makes the business less dependent on you. Put a 90-minute meeting with yourself on the calendar this month and write it down. A rough plan on paper beats a perfect plan in your head.
Sources
- IRS, Topic No. 409, Capital Gains and Losses (irs.gov/taxtopics/tc409)
- IRS, Sale of a Business and Form 8594 instructions (irs.gov)