Selling Your Business: Build the Financial Plan Before the Letter of Intent
For most owners, the business is the plan. It is the income, the retirement account, the identity, and the estate, all in one asset. So when the time comes to sell, it feels natural to focus on the deal itself: the valuation, the buyer, the negotiation.
Here is the case for reversing that order. If you are two to five years from an exit, the personal financial plan should come first, because it changes what a good deal looks like. Several planning strategies may be significantly more effective when implemented before signing a letter of intent, the preliminary agreement that sets the price and outline of a sale.
Why Waiting Until the LOI Narrows Your Options
A letter of intent is usually not binding on price, but it is practically binding. It anchors the number, sets the structure, and typically includes an exclusivity period during which you agree not to talk with other buyers. From that point forward, the timeline belongs to the deal. Diligence requests, legal drafts, and closing deadlines crowd out everything else.
That matters because certain planning strategies depend on acting before the sale is effectively certain. Gifts of business interests to family or to charity generally often must occur before the transaction has progressed to a point where the IRS could treat the sale as effectively fixed. The specific timing depends on the facts and circumstances. Trust funding and charitable structures work better with runway. Once the LOI is signed, you are no longer planning from your life forward. You are reacting from the deal backward.
The practical takeaway: the two-to-five-year window is when the interesting decisions get made. For many owners, much of the final six months focuses on executing decisions that ideally were made earlier in the planning process.
Start With What the Proceeds Must Fund
Before anyone talks about multiples, answer a simpler question: what does this money need to do for the rest of your life?
A real financial plan turns that into specifics. Annual spending, and how it changes when the company no longer covers vehicles, travel, health insurance, and the dozen other expenses that quietly run through the business. One-time goals: a home, a wedding, seed capital for a child's venture. Ongoing commitments to family and to charity. Whatever remains becomes the estate.
Working through this often produces one of the most useful planning metrics: the after-tax proceeds you actually need. That number tells you whether an offer is sufficient, not just flattering. And it gives you a rational walk-away point, which is a valuable thing to own in a negotiation.
The Question Behind the Question
This work has a second output that has nothing to do with money. The business supplied structure, status, and purpose along with income, and owners who sell without a picture of the next chapter often struggle afterward. Deciding in advance changes the plan itself. Someone starting a new company needs liquidity and flexibility. Someone stepping back entirely needs durable income. The plan should know which person it is serving.
Sale Structure Is a Planning Decision
How you get paid can matter as much as how much you are paid. Most private sales involve some mix of cash at closing, an installment note (the buyer pays you over a period of years), an earnout (additional payments tied to the business hitting future targets), and sometimes rollover equity (you keep a stake in the new entity).
Each piece carries a tradeoff worth understanding before an offer arrives:
Cash at closing is certain, but it typically concentrates the taxable gain into a single year.
An installment note can spread the recognition of gain across several years, which may smooth the tax picture, but it turns your buyer into your borrower. You now carry their credit risk.
An earnout ties part of your outcome to performance you no longer control.
Rollover equity offers a second bite of the apple, but it keeps part of your net worth concentrated in one company, which is often the very problem the sale was meant to solve.
None of these is inherently right. The right mix depends on the plan: your income needs by year, your tolerance for buyer credit risk, and your tax situation, which your CPA should model under current law. Owners who have completed this planning are often better positioned to evaluate proposed deal structures. Owners who have not tend to accept whatever the buyer proposes.
The Year of Sale Is a Window That Closes
The year you sell will likely be the highest-income year of your life. That makes it an unusually efficient moment for two categories of action.
Charitable giving
Charitable deductions are generally most valuable against high income, subject to current limits your CPA can confirm. If giving is part of your life anyway, concentrating several years of it into the year of sale can make sense. A donor-advised fund is a common tool here: you contribute in the high-income year, take the deduction then, and recommend grants to charities over time. Gifting appreciated business interests directly, before the deal is certain, can go further still, though the timing rules are strict and this is squarely attorney-and-CPA territory. The point is not any single technique. The point is that this window is short, and it closes at closing.
Entity wind-down
Selling the business rarely ends the business's paperwork. There are final tax returns, payroll close-out, retirement plan termination, state registrations to withdraw, licenses to cancel, insurance tail coverage to arrange, receivables to collect, and escrow releases that may arrive a year or more after closing. None of this is glamorous. All of it generates real deadlines and real dollars, and someone needs to own the checklist before closing day, not after.
Who Owns What on Your Professional Team
A well-run exit involves several professionals with distinct jobs:
The M&A advisor or investment banker runs the sale itself: valuation, buyer outreach, negotiation.
The transaction attorney drafts and negotiates the purchase agreement and manages legal risk.
The CPA models the tax consequences of each structure and prepares the returns.
The estate attorney drafts any trusts or gifting documents, ideally well before the LOI.
The financial planner coordinates the personal side: what the proceeds must fund, how the sale structure fits the plan, and how all the pieces connect.
That last seat is often the empty one. Each specialist optimizes their own domain, and someone has to hold the whole picture. At Fortress Financial Group, a fee-only fiduciary firm founded in 2007, with offices in Rochester, Minnesota and Scottsdale, Arizona, this is the seat we occupy. We do not prepare tax returns or draft legal documents. We build the plan those documents serve, and we coordinate with your CPA and attorneys so the deal decisions trace back to it.
When This Tends to Fit, and When It Does Not
This planning-first approach fits best when the sale is genuinely discretionary: you are two to five years out, the business is healthy, and you have room to choose timing and structure. It also fits owners whose net worth is heavily concentrated in the company, because for them the sale proceeds are the retirement plan.
It fits less well in a forced sale, such as a health event, a partnership dispute, or a distressed business, where speed matters more than optimization. It also adds less for owners whose business is a small slice of an already diversified net worth, or for those selling to family on terms driven mainly by family goals rather than price. In those cases the work still has value, but the sequencing pressure is lower.
If you are in the first group and the plan does not exist yet, that is worth fixing before a buyer sets your timeline. It is the kind of thing we are happy to talk through in a 30-minute introductory call.
The Bottom Line
A letter of intent fixes the price, the structure, and the clock, and everything after it gets negotiated inside those walls. The personal financial plan, built two to five years ahead, tells you which walls you can live with: the after-tax number you need, the payment structure you can accept, the charitable moves that belong in the year of sale, the wind-down work that follows closing, and the life the whole exercise is supposed to fund. Build the plan first. Then go find the deal that fits it.
Disclosure
Fortress Financial Group ("Fortress") is a registered investment adviser. Registration as an investment adviser does not imply any level of skill or training. This material is provided for informational and educational purposes only and should not be construed as personalized investment, legal, accounting, or tax advice, or as a recommendation to buy or sell any security or implement any particular planning strategy. Any examples discussed are illustrative only and may not apply to every investor or business owner. Tax laws and regulations are subject to change, and the availability and effectiveness of planning strategies depend on individual circumstances. Consult your attorney, CPA, and other professional advisors before making financial, tax, legal, or business decisions.
