Business Exit Planning: A Guide for Colorado Business Owners

For most owners, the business is the largest asset they will ever own. It is also the hardest one to turn into cash. You can sell a stock portfolio in an afternoon. Selling a company can take years of preparation, months of negotiation, and coordination between your financial planner, CPA, attorney, and sometimes an investment banker or business broker.

This guide walks through how exit planning works, what to do and when, and the questions to answer before you talk to a buyer. Related articles are noted throughout, with additional guides coming soon.

What is business exit planning?

Business exit planning is a coordinated plan for how you will leave your business on your terms. It answers three questions:

1. When do you want to leave? Your target date drives everything else.
2. How much do you need? The after-tax amount required to fund the life you want after the business.
3. What does the business need to look like to get there? Financially, operationally, and legally.

A good exit plan covers more than the sale itself. It includes your personal finances, the value of the business, tax structure, your exit options, contingency plans if something happens before you are ready, and what you will do with your time and money afterward.

Why owners start too late

According to the Exit Planning Institute's 2023 National State of Owner Readiness Report, 73% of business owners said they would like to exit within the next ten years, and 48% within five years. A five-year window is about the minimum time many of the strategies below need to work.

Owners usually put off planning for understandable reasons. The business is running, there is always something more urgent, and planning an exit can feel like planning to lose part of your identity. The cost of waiting is that options close one by one. Tax elections need time to season. Value improvements need a track record that a buyer will believe. A management team needs time to prove it can run the company without you.

Not every exit is planned, either. Exit planners often talk about the "five Ds": death, disability, divorce, disagreement between owners, and financial distress. A plan that only works if you choose the timing is incomplete.

An exit planning timeline

Every situation is different, but here is a general sequence many owners follow.

Step 1: Start with your personal financial plan

It sounds backward, but the first step in exit planning is not about the business. It is about you. Before you can know whether a sale price is good enough, you need to know what you need from it.

That means answering questions like these: What will you spend each year after you leave? What assets do you have outside the business? When will you claim Social Security? What do you want to leave to family or charity?

The difference between what you need and what you have outside the business is your wealth gap. The after-tax proceeds from your exit need to close it. An upcoming article walks through the math: Can You Afford to Sell Your Business? How to Find Your Wealth Gap (coming soon).

Step 2: Find out what your business is worth

Many owners have a number in their head. Fewer have a current, defensible valuation. Privately held businesses are usually valued on a multiple of earnings, such as EBITDA (earnings before interest, taxes, depreciation, and amortization) or, for smaller companies, seller's discretionary earnings. The multiple a buyer will pay depends on risk. The more confident a buyer is that cash flow will continue after you leave, the higher the multiple tends to be.

There are several levels of valuation, from an informal broker opinion to a formal appraisal by a credentialed valuation professional. A formal appraisal is generally needed for gifting, estate planning, ESOP transactions, and buy-sell agreements. For early planning, a less formal estimate can be enough to see the gap between today's value and the value you need.

Step 3: Increase the value buyers will pay for

Value is not only about revenue growth. Buyers look closely at how dependent the business is on the owner, customer concentration, the quality of financial records, the depth of the management team, documented systems, and contracts that transfer cleanly to a new owner.

Many of these are within your control and cost little more than time and attention. We cover each one in What Is My Business Worth? 7 Value Drivers Buyers Look For.

Step 4: Choose your exit path

There is more than one way to leave a business, and the highest price is not always the best outcome for every owner. The main options are:

• Sale to an outside buyer: a strategic buyer such as a competitor, or a financial buyer such as a private equity group.
• Management buyout: selling to your key employees, often with seller financing.
• Employee Stock Ownership Plan (ESOP): selling some or all of the company to a trust for your employees, which can carry tax advantages in certain structures.
• Family transfer: selling or gifting the business to the next generation.
• Sale to a co-owner: often governed by an existing buy-sell agreement.
• Orderly liquidation: selling the assets and closing the business.

Each path involves different tradeoffs in price, taxes, timing, how long you stay involved, and what happens to your employees and legacy. Upcoming article: Family, Employees, or an Outside Buyer? Comparing Your Business Exit Options (coming soon) for a side-by-side look.

Step 5: Plan for taxes early

The tax bill on a business sale can be one of the largest checks you ever write. How the deal is structured often matters as much as the price.

A few examples of how timing affects taxes:

• Asset sale vs. stock sale: Buyers often prefer asset sales. Sellers often prefer stock sales because more of the gain may qualify for long-term capital gains rates. Some proceeds in an asset sale, such as depreciation recapture, can be taxed as ordinary income.
• Qualified Small Business Stock (QSBS): For qualifying C-corporation stock issued after July 4, 2025, Section 1202 may exclude 50% of gain after three years, 75% after four years, and 100% after five years, up to the greater of $15 million or 10 times basis per issuer. Stock issued earlier generally follows the prior five-year, $10 million rules. Many service businesses do not qualify.
• Charitable planning: Gifting business interests to a donor-advised fund or charitable remainder trust generally needs to happen before a sale is substantially agreed to.
• Retirement plan contributions: A defined benefit plan can allow large deductible contributions in the high-income years before a sale, depending on age, income, and plan design.

For 2026, the federal long-term capital gains rate reaches 20% at taxable income above $613,700 for married couples filing jointly, according to the Tax Foundation. The 3.8% net investment income tax may also apply depending on your role in the business.

Colorado-specific considerations

Colorado taxes capital gains as ordinary income at its flat state income tax rate, which is 4.4% as of this writing. There is no lower state rate for long-term gains. Colorado once offered a capital gain subtraction of up to $100,000 for qualifying Colorado assets held five years or more. Since the 2022 tax year, the Colorado Department of Revenue limits that subtraction to farmers selling qualifying agricultural real property, so most business sellers should not plan on it.

For more on the federal strategies, read How Can Business Owners Reduce Tax Before They Sell?.

Step 6: Protect the plan with contingencies

A strong exit plan also covers what happens if you cannot finish it. That usually includes:

• A current buy-sell agreement between co-owners, with a clear valuation method and a funding source.
• Key-person and buy-sell life and disability insurance where appropriate.
• Updated wills, trusts, and powers of attorney that address your ownership interest.
• A written plan for who runs the business if you are unexpectedly out.

Step 7: Plan your life after the sale

Owners spend years preparing to sell and very little time preparing for the Monday after closing. You may suddenly have a large pool of liquid assets, no paycheck, and no daily structure. Decisions about investing the proceeds, generating retirement income, managing taxes in the years after the sale, and passing wealth to family all come at once. The federal estate tax exemption is $15 million per person in 2026, and for many owners a sale changes their estate plan.

Just as important is the personal side: what you will do with your time, how you will stay connected to people, and what gives you a sense of purpose outside the business.

Who should be on your exit planning team?

Exit planning works best when your advisors coordinate instead of working in silos. A typical team includes:

• Financial planner or exit planning advisor: builds the personal plan, models after-tax outcomes, and coordinates the team.
• CPA or tax advisor: handles tax structure, entity planning, and compliance.
• Business attorney: drafts agreements, reviews contracts, and negotiates the purchase agreement.
• Estate planning attorney: updates documents and implements gifting or trust strategies.
• Valuation professional: provides a formal appraisal when needed.
• Investment banker or business broker: markets the business and runs the sale process for outside sales.

The Certified Exit Planning Advisor (CEPA®) designation, issued by the Exit Planning Institute, covers this coordinated approach. It is one of several credentials in the field, and the right fit depends on your situation.

Frequently asked questions

How far in advance should I start exit planning?

Ideally three to five years before you want to leave, and earlier if you can. Several tax strategies, value improvements, and management transitions need that much time to work. Even if your exit is ten years away, a plan helps you make better decisions today.

How much does exit planning cost?

It varies widely by firm and scope. Some advisors charge a flat fee for a plan, others include exit planning in ongoing wealth management, and attorneys, CPAs, and valuation professionals bill separately for their work. Ask each advisor how they are paid and what is included before you engage.

What is the difference between exit planning and succession planning?

Succession planning usually focuses on who will lead the business next. Exit planning is broader. It includes succession, but also business value, taxes, your personal finances, and contingencies.

Do I need a business broker to sell my company?

Not always. Owners selling to family, employees, a co-owner, or an ESOP often do not use a broker. For a sale to an outside buyer, a broker or investment banker can help reach more buyers and run a competitive process, for a fee usually based on the sale price.

What happens if I die or become disabled before I sell?

Without a plan, your family may be forced to sell quickly or run a business they do not know. A funded buy-sell agreement, appropriate insurance, and updated estate documents can help protect the value of the business and your family.