Tax strategy for founder-led exits: Timing is everything

For founders, an exit isn’t just a transaction — it’s a legacy decision. Whether it’s a sale, a succession plan or a generational transfer, what comes next is often the culmination of years of risk, reinvestment and resilience.

But far too often, the tax strategy comes in too late.

In our work with founder-led businesses, one thing is clear: Timing is everything. Not just in terms of market conditions or deal multiples — but in how early you start planning for tax implications, liquidity, estate strategy and entity structure. Wait too long, and your options narrow. Start early, and you create more flexibility, more negotiating leverage and a clearer path to the future.

In a year like 2025 — where policy changes, valuation pressure and demographic shifts are all converging — timing may be your most strategic asset.

Pressure points we’re seeing in founder-led businesses

The founder-led clients we serve often face a mix of urgency and hesitation. They're dealing with rising valuations (and rising taxes), looming retirement timelines, leadership transitions, and family or partner dynamics that can complicate decision-making.

What makes these situations unique isn’t just emotion — it’s structure. Many founders have reinvested heavily in the business. Their personal wealth is concentrated. And while they may have taken steps to reduce liability over time, they haven’t always built a tax strategy for exit — especially if the process is fast-moving or reactive.

Some of the most common scenarios we encounter include:

• A founder receives unsolicited interest in the business and needs to respond quickly.
• A partner wants to exit, triggering a timeline the business didn’t plan for.
• The next generation is interested in taking over, but ownership structure creates tax friction.
• A potential strategic buyer wants to acquire assets, but the founder had assumed a stock sale.

These moments create stress — not just for the founder, but for the advisors trying to catch up. The earlier tax strategy enters the conversation, the better the outcome.

Exit scenarios are not one-size-fits-all

No two exits are the same. Each structure — sale, succession, transfer or recap — has its own tax implications. That’s why founder-led businesses need to model out multiple paths before making a decision.

Some of the key structural considerations include:

• Asset versus stock sale: Asset sales may benefit buyers but create significant ordinary income tax liability for sellers, especially in flow-through entities.
• Installment sale treatment: Can reduce immediate liability but introduces risk and ongoing tax obligations.
• Estate planning opportunities: Lifetime gifting, valuation discounts and trust strategies can shift value — but require lead time and alignment.
• Qualified small business stock (QSBS): If structured correctly, this can provide powerful capital gains exclusions, but eligibility must be planned for in advance.

Most of these strategies hinge on timing — entity type, ownership thresholds and holding periods all affect eligibility. If you’re within five years of a transaction and haven’t reviewed these options, now is the time.

Why the 2025 window matters

The next 12 to 18 months may represent a rare alignment — or a narrow window — for optimizing founder exits. Here’s why:

• The lifetime estate and gift tax exemption remains historically high. Increased by the 2017 tax reform and made permanently (for now) with the recent legislation, OBBB. That creates opportunities for wealth transfer strategies now for future growth to be sheltered.
• Capital gains rates remain favorable — for now. Proposed changes could significantly narrow the gap between ordinary income and capital gains treatment. The adoption of states that offer favorable gains treatments has been an increased opportunity for continued planning opportunities.
• Mid-market M&A is rebounding after a volatile 2023-2024 period, creating renewed interest from buyers.
• Demographic pressure is rising. Many baby boomer founders are ready to retire, and next-gen leaders are asking for clarity.

If you wait too long, you may face a more compressed planning window — and fewer levers to reduce tax impact.

It’s not just a tax problem — it’s a structure problem

Founders are often surprised by how many tax implications are baked into their entity and ownership structure. Whether the business is a partnership, S corporation or C corporation can dramatically affect deal structure, timing of income recognition and even who pays what.

We often recommend starting with a few foundational questions:

• Is your entity type aligned with the exit you’re considering?
• Who owns what — and how recently have shares/units changed hands?
• Have you considered succession equity, gifting, or trust transfers in the last three to five years?
• Are you exposed to state-level tax liabilities or double taxation risks?

These questions aren’t meant to create friction. They’re meant to open up planning windows — opportunities to shift, adjust and prepare before a buyer enters the picture.

Upside and downside planning: Why both matter

Tax strategy for an exit isn’t about engineering a perfect outcome. It’s about being ready for multiple outcomes — and knowing what each one means. That includes:

• Best-case: A strategic buyer offers a premium. You’ve structured in advance, leveraged QSBS or gifting, and minimized ordinary income exposure.
• Middle-case: You sell for a solid multiple but have missed timing windows for gifting or basis considerations. There’s still time to adjust some elements before close.
• Worst-case: You’re under LOI before tax planning begins. Tax exposure is high, and the deal is structured around someone else’s priorities.

The good news: Even in middle- or worst-case scenarios, there are tools that can help — if you have the right advisors in place and act quickly.

What successful founder exits have in common

Across industries, we’ve noticed a few patterns in exits that go well — from both a financial and emotional standpoint:

• They start planning early. Usually two to five years out, even if the timeline is still fuzzy.
• They model multiple exit paths. Including internal transfer, third-party sale and hybrid structures.
• They align tax with succession and capital strategy. Not treating it as an isolated decision.
• They assemble the right team. Including tax, legal, valuation and M&A support, ideally working together.

Tax is never the only factor in an exit — but when it’s considered early, it creates more options and better outcomes.

Final thought: Timing gives you power

The biggest lesson we’ve learned from helping founders navigate exits? Timing gives you power. Power to negotiate, power to protect value and power to decide what legacy you want to leave — not just what you walk away with.

If a transition is on the horizon — even loosely — now is the time to start the conversation. Not when the LOI hits your inbox.

How Wipfli can help

Our team helps business owners navigate uncertainty by building tax strategies that protect value, create flexibility and keep you in control — no matter what the future brings. Explore how we help businesses plan through uncertainty or check out our tax consulting services page.