Diane Steinkamp Vice President, Privately Held Investment Manager
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Key Takeaways
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When your business is a significant source of personal and family wealth, preparing to transition the business when you decide to exit means more than just a liquidity event. It is a defining moment for your legacy.
For high-net-worth business owners, the process of exiting your business is not only strategically complex but can also be deeply personal. For many owners, the business represents years of devotion and effort and may be closely tied to one’s personal and family identity. Careful introspection of your wealth goals in the context of an eventual transition is helpful, as a thoughtful approach to the decision-making process around planning for your exit cannot be overstated.
Strategic exit planning begins well in advance of when you actually plan to exit the business. From a risk management perspective, having an exit plan in place at all times is important in the event that unexpected health or family circumstances call for you to exit earlier than planned, even if you are years from retirement. Having adequate time to think through your goals, make decisions, and put the necessary components of your plan in place will help ensure a smooth transition.
Keep in mind that an exit plan can be revisited and modified over time as circumstances change and as the value of the business grows. Waiting until an exit becomes imminent or urgent may limit your options. Viewed holistically, exit planning is more effectively approached as a multi-year strategic process that aligns with the goals of your broader wealth plan rather than as a single event.
Navigating family succession and business sale
A foundational decision in exit planning is whether the business should remain family-owned following your transition or whether you will consider transferring or selling your ownership to existing partners, employees, or an outside buyer. For many business owners, the company represents not only a major financial asset but also an important part of the family’s legacy, which can make succession decisions and the resulting family dynamics particularly complex.
Exit planning inevitably raises sensitive questions about who is prepared to lead the business after your departure. When family members play active roles in the business today, their future responsibilities and ownership interests also become important considerations. Determining your intentions for future ownership, documenting succession preferences, and communicating your decisions proactively with family members can help establish expectations and reduce the potential for misunderstandings before your transition approaches.
Plan for your lifestyle, income, and cash flow needs after you exit the business
As you evaluate your exit options, consider your personal post-exit liquidity needs. Many business owners rely on the business as their primary source of income, and a significant portion of their personal spending may be supported by income generated from the company. If this is the case, having a plan for replacing your regular paycheck and supporting your day-to-day cash flow needs after the transition will be essential, in addition to planning for how to cover personal expenses that may currently be paid or subsidized through the business. Items such as insurance premiums, health insurance coverage, payments for auto loans, and other benefits tied to the business will need to be covered either through your sale proceeds or personally once the transition occurs.
If you are selling the business and receive a one-time payment of proceeds from selling, without ongoing cash flow from the business, it will be essential to evaluate whether those assets or other assets can sustainably support your future long-term spending. In contrast, an installment sale is an exit strategy where the seller receives payment over time. The financial, tax, and other risk considerations will be different depending upon the strategy you choose. Understanding how your income may change under different exit scenarios can help support sufficient cash flow after your exit or in retirement.
Plan to diversify your net worth over time
If your business represents the largest asset on your personal balance sheet, much of your net worth may be concentrated in your company and your ownership interest. Having likely reinvested a significant portion of company earnings back into the business for growth over time, you may find you possess limited personal liquidity outside the business. In such a situation, your exit plan may include provisions to gradually diversify your wealth in the years leading up to the transition by building assets outside the business to help improve personal financial flexibility and reduce your reliance on a concentrated source of value. Careful review of your investment portfolio’s asset allocation strategy alongside these shifts in your wealth plan over time can help support alignment with your long-term investment and income goals.
Understand how different exit strategies will shape your tax exposure
The structure of a business transition can significantly influence the tax implications of the transaction. For example, tax treatment can depend on whether a transaction is structured as a stock sale or an asset sale, and how the purchase price is allocated among assets such as goodwill, contracts, or equipment. These decisions can affect whether proceeds are treated as ordinary income or capital gains, making tax strategies an important consideration when planning a business exit. Tax treatment will also differ depending on whether the seller receives the entire proceeds from the sale at once versus a strategy that involves payments to the seller over time, such as an installment sale or earn-out. Such an exit may change the nature of your tax liability, defer, or spread out the timing of your tax liability over time, but each strategy should be considered holistically in light of the full set of risks to consider.
A large influx of liquid assets may also increase the size of your taxable estate, which can be an important consideration for individuals approaching the federal estate tax threshold. Because tax outcomes vary widely depending on deal structure and individual circumstances, working with experienced tax advisors early in the process can help ensure the transaction is structured in a thoughtful and tax-efficient manner.
Connect your business transition to your estate and legacy planning goals
Before or during a business transition, it may be helpful to revisit how the business fits within your broader estate plan. After exiting the business, the composition of family wealth may shift from a privately held business as the primary source of family wealth and ongoing income to liquid financial assets that need to sustain your lifestyle in retirement as well as your long-term estate and legacy goals for your family. Reviewing trusts, gifting strategies, and other estate planning documents can help support the transfer of assets in a way that reflects your intentions for wealth transfer across generations. Your exit event may also be an opportunity to consider how proceeds from the sale could be used to support family members, philanthropic priorities, or other legacy goals that extend beyond the business itself.
Consider which exit strategy best supports your family’s wealth goals
Once you have determined your goals for exiting the business, the next step is evaluating which exit strategy best supports your unique circumstances and objectives. Each strategy carries different potential outcomes for the future of the company, family dynamics, paths to liquidity, as well as tax and estate planning implications.
For inside exit strategies, such as an intergenerational transfer, sale to existing partners, or a management buyout, certain legal documentation can help establish a clear structure for transferring your business interests. For example, a buy-sell agreement or a governing document for the company may outline when an ownership interest can be transferred, who has the right to buy it, how the business will be valued, and how the purchase will be funded. Periodic review of your exit plans can help these agreements remain aligned with the company’s current circumstances.
Intergenerational transfer keeps the business in the family
Deciding to transfer both ownership and leadership of your company to a member of the next generation may be one of the most important family decisions you will make, as the decision will not only shape your personal legacy but also have a lasting impact on the legacy of your family. Whether this is the first transition to the next generation or the company has been in the family for multiple generations, it is important to determine not only whether this exit strategy is the right fit for you and your family but also how it will be managed.
A successful intergenerational transfer requires that next-generation family members be capable and prepared to serve in leadership roles and able to fulfill the responsibilities that accompany family ownership. Your transition may require a deliberate plan to prepare family successors to lead the company. Sometimes, this includes ensuring your appointed successor is supported by a strong leadership team with the right complementary experience to fill key management roles critical for a smooth transition.
It is also important to think about how the transfer will be structured. Depending on the company’s current ownership structure and your financial goals, ownership may be transferred through a direct sale or gifting, potentially involving the use of trusts or a combination of these approaches. A sale to the next generation may provide liquidity for the exiting owner. In some cases, this may be structured as an installment sale, allowing the purchasing family member to make payments over time rather than securing full financing upfront.
Alternatively, gifting strategies may be used to shift ownership gradually while carefully managing gift and estate tax exposure and maintaining compliance with the company’s governing documents. Trusts can also play a role in transferring business interests while addressing broader estate planning objectives. For example, trusts may help provide structure to an ownership transition through long-term governance parameters or conditions around distributions to beneficiaries. The method you choose for the transfer your business interests may depend on your liquidity needs, tax considerations, and vision for the business and your family.
Finally, family dynamics deserve particularly careful attention with any intergenerational transfer. Tension may arise around the equitable treatment of children. For children and other family members who may remain involved in the business, the question of their ongoing role in the company will also be important to address. And if some children are actively working in the business while others are not, tools such as dividend policies, trust structures, or other estate equalization strategies may help balance inheritances among heirs. Approaching the transition with preparation and guidance from an objective third party who can help you navigate sensitive conversations may be beneficial to preserve both family relationships and the long-term stability of the business.
Selling the business to existing partners
For businesses with multiple owners, selling your ownership stake to existing partners can provide a structured exit path that allows ownership to remain within the established leadership group. Because these partners are likely already involved in governance and decision-making at the highest level, the transition may be more straightforward than introducing a new external buyer.
This approach may work best when one owner is ready to exit while remaining partners continue operating the business. If partners are similar in age or plan to retire around the same time, coordinating a buyout may be more difficult. When partners exit simultaneously, there may not be a remaining owner who is willing or able to buy out another owner’s interest.
In many privately held businesses, a sale to existing partners is governed by a buy-sell agreement, which may be incorporated into a broader partnership or operating agreement. A buy-sell agreement outlines what happens to an owner’s interest in the event of retirement, disability, death, or other triggering events. The agreement typically establishes who may purchase the interest, how the ownership stake will be valued, and how the transaction will be funded.
Funding mechanisms are an important component of executing a sale to existing partners. Buyouts are often supported by life or disability insurance policies designed to provide liquidity to the remaining partners when a triggering event occurs. Ensuring that insurance coverage amounts reflect the company’s current value is critical. Otherwise, remaining partners may face a shortfall at the time of transition. A buy-sell agreement that was drafted years earlier may no longer align with the company’s present value, capital structure, or ownership objectives. Regular review of your buy-sell agreement can help ensure the agreement remains a practical roadmap for your ownership transition.
Transitioning ownership through a management buyout
For business owners who do not intend to transfer their ownership to family members or existing ownership partners, a management buyout where key managers purchase the business from the exiting owner may be appropriate when the company has a capable and committed management team, and the owner’s priority is maintaining continuity rather than seeking the highest possible sale price from an outside buyer. Because the managers are currently running the company’s operations and engaged in client relationships, this approach can help preserve stability for the company and its employees during and after the transition. A management buyout can be particularly attractive if preserving company culture and protecting long-standing employee relationships are also central objectives.
Unlike a third-party sale, management teams may not have immediate access to the capital needed to purchase the business outright. If so, transactions may be structured with installment payments over time, seller financing, or performance-based earn-outs tied to future company results. In these arrangements, the exiting owner does not receive full liquidity at closing and instead relies on the company’s continued performance and the purchasing managers’ ability to meet the agreed-upon payment terms. Because a portion of the proceeds may be contingent on future performance outcomes, pursuing these strategies requires appropriate independent legal advice and assistance to ensure that terms in the agreement specifically address all aspects essential to protecting the seller’s interests.
In some cases, the owner may remain involved in the business for a defined period under a consulting or transitional services agreement. The owner’s continued involvement can support continuity by helping preserve key relationships, transition institutional knowledge, and keep the business positioned to meet performance targets. The success of a management buyout, much like with an intergenerational transfer, depends on preparation well in advance of the transaction.
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Recapitalization can be a valuable exit planning tool A recapitalization is a change to a company’s capital structure, often involving adjustments to the mix of debt and equity on the company’s balance sheet. In the context of exit planning, recapitalization may be used as a step to help facilitate the transition of business ownership, whether that be an intergenerational transfer, management buyout, sale to existing partners, or third-party sale. For high-net-worth business owners, recapitalization may help create liquidity and provide a way for certain owners to exit while others remain involved in the business. For example, a company may issue different classes of ownership interests such as voting and non-voting shares. Existing equity may be restructured. Or the company may take on new debt to create liquidity to buy out the exiting owner while allowing the remaining owners to retain control of the company. In short, recapitalization can help adjust a company’s balance sheet to better facilitate a future ownership transition. |
Using an employee stock ownership program (ESOP) as an exit strategy
An ESOP is a qualified retirement plan that acquires ownership in a company on behalf of its employees. As an exit strategy, an ESOP can enable business owners to sell some or all of their ownership to an ESOP trust while potentially achieving liquidity, allowing employees to share in the success through retirement benefits tied to company stock, while preserving the company's legacy and benefiting from certain tax advantages.
The ESOP trust purchases the owner’s shares typically either with company cash or funds borrowed for that purpose. In a leveraged ESOP, the ESOP trust borrows money from a bank, the seller, or both to purchase the owner’s shares. The company subsequently makes tax-deductible contributions to the ESOP trust over time to repay the loan.
Using an ESOP can also offer certain tax advantages for the exiting business owner, depending on how the company is structured. For example, with a C corporation, a selling shareholder may be able to defer capital gains taxes from the sale of company stock to an ESOP trust by reinvesting proceeds in qualified securities, which can be particularly attractive for owners with significant unrealized appreciation. Some companies may benefit from tax-deductible contributions used to fund the transaction. Given the particularly complex rules and ongoing regulatory oversight and administration required for this strategy, owners typically work closely with tax, legal, and financial advisors to determine if an ESOP is appropriate.
Selling to a third party in a way that maximizes market value and liquidity
A sale to a third party, whether to a strategic buyer or a financial buyer, such as a private equity firm, may be attractive if a primary goal is to secure a strong sale price and complete the transaction efficiently, with proceeds paid at closing or through an installment structure. A third-party sale may be appropriate when there is no clear family or internal successor to take over, or when the owner’s priority is achieving the highest possible valuation and selling price for the business. A sale to a third party can also offer potential for the company to grow significantly.
Strategic buyers are operating companies that acquire businesses to strengthen their competitive position or realize operational synergies. Financial buyers, such as private equity firms, acquire businesses as investments, seeking to enhance enterprise value over time before pursuing a future exit. While strategic buyers may offer higher valuations in some situations, financial buyers may provide opportunities for owners to retain an ownership interest and participate in the company's future growth.
Because the valuation of the business drives the price a buyer is willing to pay, understanding the current valuation of your business is particularly important in a third-party sale. Sophisticated potential buyers will not only evaluate current earnings but also the durability of revenue, the strength of the management team, and even the degree to which the business depends on the previous owner’s ongoing presence in the business. When operational authority or key client relationships rely heavily on the owner's personal involvement, such a level of dependence on the owner can materially affect the perceived value of the business.
Preparing the business for sale may involve changes such as building out the leadership team, delegating responsibilities, and institutionalizing operational processes well in advance of a transition. Ultimately, a company’s market value is determined by what a qualified buyer is willing to pay, making buyer demand and competitive positioning critical factors in the outcome of a sale.
For owners who are prepared to relinquish control and can accept that buyer interest and market conditions may influence the final outcome, a third-party sale can provide significant liquidity and financial flexibility, and if the acquirer is an investor, may even allow the owner to participate in future appreciation when the investor ultimately exits the business. Achieving a favorable result often depends on realistic valuation expectations and thoughtful positioning of the business.
Specialized, integrated wealth guidance to help you navigate this critical transition
No matter which exit strategy you pursue, it is important to consider how the transition will impact your broader financial picture. Thoughtful planning before, during, and after an exit can help you transition the wealth created through your business into a comprehensive strategy that supports your family, reflects your priorities, and is aligned with your long-term financial objectives.
Exiting a business is often a multi-year journey rather than a single event. For many business owners, a successful exit represents the culmination of years of focus and effort, and a transition that carries both financial and personal significance for the legacy you have built. Whether the transition involves family members, internal stakeholders, or an outside buyer, thoughtful exit planning requires early preparation. Even if a plan evolves or changes over time, having a clear exit framework in place at all times can help ensure the outcome reflects your priorities rather than being inadvertently shaped by circumstances alone.
At Commerce Trust, our private wealth management team works with business owner clients to approach exit planning in the context of all facets of your family’s wealth goals, including impacts to your tax situation, wealth transfer, trust administration, investment strategy, and banking needs. Our privately held business and exit planning specialists can help you obtain a high-level business valuation, assess your exit readiness, and evaluate your business attractiveness through the lens of a future buyer. Our team will collaborate closely with your attorneys, your accountant, investment banker, and other advisors to align transition outcomes with your overall wealth strategy.
Contact Commerce Trust today to learn how our team can help you secure your legacy by developing a thoughtful exit strategy integrated with your personal wealth plan, positioning your business transition to support your family’s long-term objectives.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.
The opinions and other information in the commentary are provided as of July 17, 2026. This summary is intended to provide general information only and may be of value to the reader and audience.
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. Consult a tax specialist regarding tax implications related to any product and specific financial situation. Consult an attorney for legal advice, including drafting and execution of estate planning documents.
Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against all risk.
Commerce Trust does not provide tax advice to customers unless engaged to do so. Commerce Trust does not provide legal advice to its customers. Consult an attorney for legal advice, including drafting and execution of estate planning documents.
Commerce Trust is a division of Commerce Bank.
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