However, I see plenty of founders having liquidity events only to find themselves making hurried decisions with their newfound wealth, ultimately feeling frustrated when they realize they’ve paid a painful price by not having the proper advice. 

Typically, I recommend breaking your planning into two separate phases to reduce overwhelm and maximize your wealth: planning before an exit and planning after an exit.

Determine your goals and strategy

Before an exit, it’s important to coordinate planning and hammer out key details that will carry you through the sale of your business. This typically means teaming up with a financial adviser, an accountant, and an estate planning attorney. Just as you’ve built the team of your company to help your business grow and succeed, it’s important to build a team that’s coordinated and focused on your personal financial success both now and in the future. 

Spending time upfront to determine your goals, objectives, and desired lifestyle can save you endless headaches on the back end of an exit, possibly save you a surprising amount in taxes and set you up for long-term success and fulfillment.

Taxes and QSBS

Speaking with a professional can help you determine what tax savings opportunities would be most applicable to your specific situation. For example, if you’re a startup founder, you may qualify for the QSBS exclusion (qualified small business stock). This exclusion could, if you qualify, allow you to exclude up to $10 million, and sometimes multiples of that, in federal capital gains tax after selling your stake in the company. 

One of our clients whose company was being acquired did not know whether he would qualify for the QSBS exclusion when he was introduced to us. By coordinating with his corporate counsel and accountant, we determined he would. In this specific situation he had acquired the domestic C Corporation shares of his tech company, and held them for over five years by the time the acquisition happened. And when he initially obtained the shares, the gross assets of the company were less than $50 million. Needless to say, he was pleased to learn that the first $10 million of his gains were exempt from federal tax!

Requirements to qualify for QSBS include but are not limited to:

1. Domestic C corporation stock acquired directly from the company and held for over 5 years
2. Stock issued after August 10, 1993, and ideally, after September 27, 2010 for a full 100% exclusion
3. Gross assets of the company must be less than $50 million when the stock was acquired 
4. Active business with 80% of assets being used to run the business; cannot be an investment entity
5. Cannot be an excluded business type such as, but not limited to finance, professional services, mining/natural resources hotel/restaurants, farming or any other business where the business reputation is a skill of one or more of the employees.