Quick Summary
Most founders assume exit planning begins when a buyer shows up. It does not. By the time a letter of intent is on the table, the deals with the most tax flexibility are the ones where a tax attorney was involved months or years earlier. The structural decisions that reduce your tax bill most require time to implement: trust formations, entity restructuring, equity planning, and pre-liquidity charitable moves.
The Real Cost Of Waiting
Picture a founder who built a software company over ten years, took it from an LLC to a C-corp three years ago, and is now fielding inbound acquisition interest. The company is worth around $18 million. He has not done any QSBS analysis because the sale is not definite yet. He figures he will deal with the tax question when a deal is actually real.
When the LOI comes in and the deal attorney starts asking about QSBS, the analysis reveals two problems. First, the five-year hold clock on the C-corp shares started three years ago, not at founding. He is two years short of qualifying. Second, the buyer wants an asset deal, which would eliminate Section 1202 treatment even if he did qualify.
Neither of those problems was hidden. Both of them were visible and addressable two years earlier. Neither of them can be fixed after the LOI is signed.
What Exit Planning Actually Covers
Exit planning is not a checklist of documents you prepare before a sale. It is a strategy built around your specific equity, your entity structure, your timeline, and your financial life after the liquidity event. That strategy covers several distinct areas.
Equity analysis: Which shares qualify for preferential tax treatment, which do not, and whether there is time to address gaps. QSBS eligibility, holding period confirmation, and secondary purchase issues all surface here.
Entity and deal structure: Whether the company is structured in a way that gives you negotiating room on stock vs. asset deal terms, and what that decision means for the overall tax outcome. The interaction between deal structure and your tax exposure is substantial enough to warrant its own analysis before you sit across from a buyer.
Trust and estate planning: Whether assets should be moved into trust structures before a sale to shift the tax burden or benefit from stepped-up basis rules. Pre-liquidity trust planning frequently requires 18-24 months of runway to function properly. Post-liquidity, many of those options are closed.
Charitable vehicles: Charitable remainder trusts and donor-advised funds can absorb taxable gain in ways that benefit both the founder and the causes they care about, but only if funded before the sale closes. After the sale, the gain has already been recognized and the tax is owed.
The Letter Of Intent As A Deadline, Not A Starting Point
Founders frequently treat the LOI as the beginning of the exit process. For tax planning purposes, it is closer to a deadline.
Once the LOI is signed, the deal structure is mostly set. The timeline is compressed. The due diligence process is live. A tax attorney brought in at this stage is managing damage, not building strategy. They can still find things, and those things still matter, but the tools available in that window are a fraction of what was available 12 months earlier.
The question founders need to ask is not “when do I need a tax attorney?” It is “what would I do if I had more time?” That question, answered honestly, is a list of things that belong in a pre-LOI strategy conversation.
What Good Pre-Liquidity Planning Looks Like
A founder who engaged a tax attorney 18 months before a sale has time to confirm QSBS eligibility, address any gaps in the structure, and build a trust framework that shifts value out of the taxable estate before the sale closes. By the time the buyer’s LOI arrives, the structure is already optimized.
That same founder has had time to talk to their estate planning attorney about how the sale proceeds get treated after the liquidity event. Pre-liquidity estate planning is a different conversation than post-liquidity estate planning, the assets are different, the use is different, and the tax exposure is different. Founders who address estate planning before liquidity rather than after it are working with a much wider set of tools.
They also understand the deal structure question before a buyer puts it on the table. When a buyer proposes an asset deal, a founder who has already analyzed the tax outcome of each structure knows immediately how to respond, and what a price adjustment would need to look like to make an asset deal acceptable. That is negotiating from preparation. It is a different position than negotiating from surprise.
When To Start
There is no minimum timeline for beginning exit planning. Founders who are five years from a potential sale have more options. Founders who are 18 months out have fewer, but still meaningful ones. Founders who are six months from an LOI are working with a short window.
The honest answer is that the right time to start is before you think you need to. The second-best time is today.
Contact Dustin for a confidential conversation about your tax strategy.
