By Jonathan Penta, Senior Wealth Advisor, Founder & Managing Director CEPA®
Selling a company is the single most significant financial event of many business owners lives. It’s the culmination of decades of effort, discipline, and risk-taking. Yet despite the magnitude of this transaction, far too many entrepreneurs approach the process with inadequate preparation, often leading to avoidable financial missteps that can erode both value and peace of mind.
At Penta Wealth Management, we work with entrepreneurs who expect a caliber of thoughtfulness and insight that reflects the sophistication of the businesses they’ve built. We’ve observed five recurring financial mistakes that, when avoided, can meaningfully elevate outcomes during a business exit.
- Failing to Plan Early Enough
Too many business owners initiate financial planning after receiving a letter of intent or, worse, once a deal is on the table. Effective exit planning should begin 3–5 years before a sale, allowing time to optimize tax positioning, restructure ownership if needed, and align the business for maximum valuation.
Proper planning can include:
- Establishing a grantor retained annuity trust (GRAT) or intentionally defective grantor trust (IDGT) to reduce estate tax.
- Reviewing compensation structures to ensure key employees are retained and incentivized pre- and post-sale.
- Exploring pre-sale gifting strategies to family or charitable entities.
- Modeling the allocation of sale proceeds across taxable investment accounts, trusts, debt reduction, and real estate to align with long-term objectives and liquidity needs.
- Underestimating the Tax Impact
Business sales often trigger multiple layers of taxation: federal capital gains tax, state taxes, Net Investment Income Tax, and potentially even depreciation recapture. For certain entity structures, the double taxation effect can be particularly punishing if not mitigated early.
Strategies to reduce the tax bite may include:
- Qualified Small Business Stock exclusion under IRC Section 1202.
- Opportunity Zone investments to defer or reduce gain.
- Choosing a stock sale vs. asset sale carefully, based on tax treatment.
- Exploring installment sale strategies that spread income, and tax liability, across multiple years.
- Ignoring Post-Sale Wealth Management Needs
Many entrepreneurs sell without a detailed post-sale investment strategy, assuming they’ll “figure it out” once liquidity hits. This lack of foresight often results in emotional decision-making, suboptimal asset allocation, and excessive cash drag.
At Penta Wealth Management, we design comprehensive liquidity transition strategies that align with your personal goals, risk tolerance, and long-term capital needs. Key components include:
- Investment policy statement to guide decisions.
- Diversified portfolios tailored for capital preservation and income generation.
- A cash flow plan to replace business income while minimizing drawdown risk.
- A tax-aware withdrawal strategy to help optimize portfolio longevity and reduce unnecessary tax exposure.
- Overvaluing the Business or Overlooking Deal Structure
Entrepreneurs are understandably proud of what they’ve built. But overconfidence in valuation, often based on emotional attachment or industry myths, can sabotage serious deals. Equally important is the structure of the deal itself: earn-outs, seller notes, holdbacks, or rollovers all carry distinct risk profiles.
Mistakes here include:
- Assuming all offers are equal on a dollar-for-dollar basis.
- Failing to quantify the risk-adjusted value of future contingent payments.
- Accepting equity in a buyer’s business without sufficient due diligence.
- Overlooking working capital requirements and how they affect final proceeds, an area where many sellers leave money on the table.
- Neglecting Family, Legacy, and Philanthropic Planning
A liquidity event is not only a financial milestone, it’s a legacy moment. Too many owners focus exclusively on the transaction and neglect the human and philanthropic elements of wealth transfer.
Missed opportunities include:
- Involving heirs in a thoughtful, values-based wealth conversation.
- Establishing charitable remainder trusts or donor-advised funds for impactful giving and tax efficiency.
- Crafting an estate plan that reflects new realities post-sale.
- Creating a family governance framework that promotes long-term stewardship, collaboration, and intentional wealth education across generations.
Final Thoughts
Selling your business is not the end of a journey, it’s the beginning of a new chapter that requires intentionality, technical excellence, and emotional intelligence. At Penta Wealth Management, we bring a level of rigor and clarity that empowers business owners to make not just good decisions, but the best possible ones, backed by data, foresight, and unmatched strategic depth.
If you are contemplating a sale or simply want to understand how prepared you are, we invite you to start the conversation today. In a moment as important as this, thoughtful advice isn’t just valuable, it’s indispensable.
