Selling your company is likely the largest financial event of your life — and chances are you’ll only get one chance to do it right.
After decades of long days (and probably nights), the moment you step away should feel like an achievement, not a heart-racing gamble. But too often, owners enter negotiations without a documented exit plan, leaving value on the table or triggering massive tax consequences.
While good fortune and lucky timing are variables in a business’s success, a successful exit doesn’t happen by accident — it’s the result of deliberate preparation. And yet, according to the Exit Planning Institute, only 13% of business owners have a formal, written exit plan, even though 73% of private companies will transition over the next decade.
This guide outlines how Minnesota business owners can build an exit planning strategy that protects hard-earned value, minimizes taxes, and ensures a smooth transition for everyone involved.
Why Exit Planning Matters (and Why It Takes Time)
Selling a business isn’t like selling a house — you can’t just list it, wait for offers, and hope for the best. A company’s value depends on a host of internal and external factors. And just like the business itself, an exit needs to be built.
Exit planning aligns your personal financial goals, tax strategy, and succession plan. Ideally, this starts three to five years before you plan to transition. This gives you a decent window to enhance value, strengthen management, and prepare for buyer due diligence.
Many Minnesota business owners wait until retirement is on the horizon or an unsolicited offer appears. But waiting limits your options — and often, your negotiating power. Starting early allows you to:
- Improve financial reporting and cash flow visibility
- Develop or retain key employees
- Separate personal and business expenses
- Evaluate tax-efficient ownership structures
- Test your post-sale financial plan
The earlier you start, the more control you have not only over your company’s market value but also over what your next chapter looks like.
Step 1: Establish Your Financial and Personal Goals
Every successful exit begins with clarity about both how you’ll sell and why.
That starts with defining what financial independence looks like after the sale. Do you want to retire completely? Launch a new venture? Pass the company to a family member or key employee? Each goal has a different exit path, tax structure, and time frame.
Many owners underestimate how much of their wealth (and identity) is tied to their business. In fact, fewer than 3 in 10 Baby Boomers have integrated a personal plan into their exit strategy. Without a defined target, it’s easy to either sell too soon or hold on too long.
| Example:
A Rochester-based manufacturing owner decides to sell after 35 years. Initially, he planned to retire outright, but once he quantified how much he’d need to sustain his lifestyle, he realized a partial sale to a private equity group allowed him to achieve both goals — financial independence and continued involvement in the business he built. |
Setting goals upfront gives you a measuring stick for every decision that follows: valuation, deal structure, and even successor selection. It positions your exit to serve your life, not the other way around.
Step 2: Determine the Value of Your Business
Once you know what you want out of an exit, the next question is easier asked than answered: What is your business actually worth?
Many owners guess, basing their assumptions on industry multiples or what competitors sold for. But a formal business valuation does far more than put a price tag on your company. It clarifies how market conditions, cash flow, and internal systems contribute to or detract from the value of the business.
A qualified valuation specialist can help you determine your company’s transferable value — the portion that would remain if you stepped away tomorrow. This number often differs from your balance sheet or back-of-the-envelope calculation because it’s specifically how attractive your business is to potential buyers.
| Example:
A St. Cloud–based professional services firm assumed it was worth $8 million based on annual revenue. A formal valuation revealed a more realistic figure closer to $6 million, primarily because too much client work depended on the founder. By delegating responsibilities to key employees and documenting core processes, the firm can increase its transferable value before ever entering negotiations. |
Minnesota’s economy is diversified but founder-heavy — manufacturing, professional services, construction, health care, and logistics are some of the most company-dense industries. In many cases, these are family- or owner-operated entities. Taking time to benchmark your firm’s performance and risk profile can be a powerful differentiator when buyers start comparing opportunities.
Step 3: Explore Exit Options and Their Tax Implications
Just as there’s more than one way to cook an egg, there’s more than one way to exit a business. The “right” way depends on your goals, time frame, and appetite for continued involvement. Each option has its own financial, operational, and tax considerations.
Below are some of the most common paths Minnesota business owners explore when planning their transition.
Third-Party Sale
Selling to a strategic buyer, competitor, or private equity firm can create immediate liquidity and potentially command the highest price, especially when multiple bidders are involved.
However, the devil is in the details. Asset sales (where you sell company assets) and stock sales (where you sell ownership shares) are taxed differently. In general, asset sales trigger higher taxes for sellers because more of the gain is treated as ordinary income. Stock sales typically qualify for long-term capital gains treatment, resulting in lower tax rates.
For Minnesota residents, those gains are also subject to state income tax — up to 9.85%, one of the higher rates nationwide. A proactive tax strategy can help mitigate that impact, such as using installment sales to spread gains across multiple years or coordinating charitable giving before the sale closes.
Management Buyout (MBO)
In a management buyout, ownership transfers to existing key employees who already understand the business. This structure promotes continuity but may require seller financing, staged payments, or outside capital.
Since the proceeds are usually spread out over several years, MBOs can create tax efficiency through installment payments, though they also delay full liquidity. Still, for owners prioritizing legacy or cultural continuity over an immediate payout, it can be an effective solution.
Employee Stock Ownership Plan (ESOP)
ESOPs are gaining popularity among mid-sized Minnesota firms as a way to reward employees and preserve company culture. There are 45 employee-owned companies in Minneapolis alone.
An ESOP sells shares of the business to employees through a qualified retirement plan. Sellers may be eligible for favorable tax deferral under Section 1042 of the Internal Revenue Code, allowing them to reinvest proceeds into other securities and defer capital gains tax.
While ESOPs involve administrative complexity and annual valuations, they can provide a win-win: liquidity for the owner and retirement benefits for employees.
Family Transfer or Succession to the Next Generation
Passing the business to a family member can help preserve your legacy, but even if the new owners share your surname, a plan is still absolutely necessary. Without a structured buy-sell agreement or funding mechanism (like life insurance or a promissory note), family transfers can strain relationships and finances alike.
Minnesota adds an additional wrinkle: the state estate tax exemption is $3 million per individual (far below the federal level of $14 million in 2025). That means some family business owners could face estate taxes at the state level even if they’re exempt federally.
Coordinating with your financial advisor and estate planning attorney can help structure the transfer — through gifting strategies, family limited partnerships, or trusts — to minimize future taxes and maintain family harmony.
Initial Public Offering (IPO) or Partial Liquidity Event
Few private companies reach IPO scale, but for fast-growing firms, an initial public offering or minority recapitalization can unlock partial liquidity without full relinquishment of control. While not typical for most Minnesota small and mid-market businesses, these paths can be viable in select industries, particularly technology and healthcare.
Step 4: Prepare the Business for Sale or Transition
Once you’ve identified your preferred exit path, the next step is getting your business ready for new ownership. Preparation may not be glamorous, but it’s the bridge between intention and execution.
Strengthen Financial Reporting
Clean, consistent financials are non-negotiable. Buyers and lenders will scrutinize everything from historical earnings and customer concentration to cash flow projections and backlog.
| Example:
A Twin Cities contractor preparing for a management buyout discovered that several key projects weren’t invoiced consistently. By tightening billing practices and implementing standardized reporting, the company not only clarified earnings but also added credibility with its buyers and bankers. |
Review your books with your CPA and normalize EBITDA (earnings before interest, taxes, depreciation, and amortization) to remove one-time or personal expenses. This ensures buyers are evaluating the business on true performance.
Retain and Incentivize Key Employees
People drive enterprise value. If your management team and top performers are likely to stay post-sale, it reduces perceived risk for buyers. Consider retention bonuses or stay agreements that reward key contributors for helping with a frictionless transition.
This step is especially important in Minnesota’s tight labor market, where skilled managers and technicians are in high demand across manufacturing, construction, and professional services. Retaining leadership talent can meaningfully increase your company’s marketability and its sale price.
Separate Personal and Business Expenses
It’s common for privately held companies to blend personal and business costs — a vehicle here, a family phone plan there. While understandable, these mixed expenses can complicate valuations and reduce buyer confidence.
Start documenting and cleaning up those gray areas early. Not only does it streamline due diligence, it also ensures your reported earnings accurately represent operating performance.
Address Real Estate Holdings
If your business owns its real estate, consider how it factors into the sale. Do you plan to sell it with the company, or retain it as a source of income? Separating real estate from the operating entity can offer flexibility and sometimes tax efficiency.
For example, retaining the property and establishing a lease with the buyer can provide steady, predictable income in retirement while reducing the total sale price (and corresponding capital gains exposure).
Delegate and Document
Buyers pay more for businesses that run smoothly without their founders. If you’re still the one signing every contract or approving every expense, that’s a red flag.
Document key processes, develop your management bench, and empower team members to make decisions independently. The more transferable your business appears, the more attractive it becomes — and the higher the potential valuation.
Step 5: Minimize Taxes and Maximize After-Tax Proceeds
Taxes are inevitable. Overpaying them isn’t. Two owners could both close on an $8 million deal, but one could walk away with $6 million after taxes, while the other may barely net $4 million.
Minnesota’s tax laws make this especially important. That means proactive coordination between your financial, tax, and estate advisors can make a seven-figure difference in what ultimately reaches your family’s balance sheet.
Below are several strategies that can help keep more of your proceeds working for you.
Choose the Right Deal Structure
The sale structure determines how your proceeds are taxed.
Asset Sale: You sell the company’s assets — inventory, equipment, etc. — rather than ownership shares. Buyers often prefer this because it allows them to “step up” the asset basis for depreciation. But for sellers, much of the gain is taxed as ordinary income, not capital gains, increasing their overall tax bill.
Stock Sale: You sell ownership shares of the entity itself. This generally qualifies for long-term capital gains treatment and can simplify liability transfer. For S-corps or C-corps, this approach typically produces lower tax friction, though buyers may pay a modest premium for that benefit.
Time the Transaction (and the Payout)
Spreading income across multiple years can prevent you from being pushed into a higher bracket. Consider installment sales, which allow you to receive payments over time, or negotiate to close in early January rather than December to move taxable income into a new year.
Integrate Charitable and Estate Planning
If philanthropy is part of your legacy, incorporating charitable strategies before the sale can yield major tax benefits.
- Donor-Advised Funds (DAFs): Donating shares before closing allows you to deduct the fair-market value while avoiding capital gains on appreciation.
- Charitable Remainder Trusts (CRTs): Provide lifetime income for you or your spouse, with the remainder passing to charity — all while spreading out tax liabilities.
- Gifting or Trust Transfers: For family businesses, gifting shares in advance of a sale can shift future appreciation out of your estate, minimizing Minnesota estate tax exposure.
Consider Qualified Small Business Stock (QSBS)
If your business was originally organized as a C-corporation and meets the criteria under Section 1202 of the Internal Revenue Code, you may be able to exclude up to 100% of capital gains (up to $10 million) from federal tax.
While not every Minnesota business qualifies, this incentive can be substantial for those that do.
Build Your Bench of Trusted Advisors Early
Minimizing taxes is not a walk in the park. A successful exit typically involves coordination among a financial advisor, tax adviser, CPA, estate attorney, and business valuation expert. Together, they can model sale scenarios and show how different structures affect your after-tax results.
The earlier this team is assembled, the more business exit strategies you’ll have at your disposal.
Step 6: Create a Post-Exit Roadmap
A business sale may mark the end of one chapter, but it’s not the final chapter. Without a plan for your newfound liquidity and time, it’s easy to drift, overspend, or lose the sense of purpose that built your success in the first place.
After the sale, your priorities shift from growing a business to managing personal wealth. A clear post-exit plan helps you:
- Reinvest proceeds in a diversified, tax-efficient portfolio
- Evaluate new business or philanthropic opportunities
- Revisit your estate plan to reflect new levels of wealth
- Align your retirement plans and cash-flow strategy with lifestyle goals
Transitions like these are deeply personal. For many Minnesota entrepreneurs, the exit is an evolution from founder to family steward, investor, or mentor. A trusted financial advisor can help you design this next phase intentionally, ensuring your capital continues to serve your goals long after the business changes hands.
At Pine Grove, we specialize in helping business owners turn decades of hard work into lasting financial independence. From valuation to reinvestment, we’ll help you navigate the full exit planning process with clarity and confidence.
If you’re ready to plan your next chapter, schedule a conversation with our advisory team to start building your personalized exit roadmap today.
