Five Years Out: The Business Owner’s Exit Planning Checklist

If you are five years away from retiring or selling your business, you are standing in the only window that still gives you real leverage. Not the twelve months before a letter of intent — by then the buyer sets the terms, the tax structure is largely locked, and your key people have already figured out that something is happening. Five years out, almost everything is still adjustable. The exit planning checklist below is built for exactly that window.

The owners who capture the highest multiples and keep the most after tax are not the ones who negotiate hardest at the closing table. They are the ones who spent five years quietly engineering the business so the closing table was a formality. Here is what that looks like.

The Five-Year Exit Planning Checklist

Years 5 to 4: Establish a Baseline You Can Actually Defend

• Get a real valuation, not a rule of thumb. “Three times EBITDA” is not a plan. You need a defensible number built from normalized earnings — adjusted for owner compensation, personal expenses running through the company, one-time items, and related-party rent.
• Clean up the financials. Buyers pay a premium for three years of consistent, reviewed or audited statements. Start the clock now.
• Identify your value killers. Customer concentration above 20 percent, a single key supplier, expiring leases, missing contracts, deferred capital expenditures, and — the big one — owner dependency.
• Answer the honest question: can this business run for 90 days without you? If the answer is no, you do not own a business. You own a job that will be discounted at sale.
• Set the target number. Work backward from the after-tax proceeds you need to fund the rest of your life. That number, not the market, defines whether you are ready.

Years 4 to 3: Build the Retention Architecture

Nothing destroys deal value faster than a key executive walking during due diligence. Buyers pay for a management team that stays.

• Name your critical few. Usually three to six people. Not the org chart — the people whose departure would change the purchase price.
• Put a plan in place that pays for staying through the transaction. A nonqualified deferred compensation plan or SERP with vesting tied to a change in control aligns your executives’ payday with yours.
• Consider equity-feel without equity. Phantom stock lets a key executive share in the growth in enterprise value — and get paid at the sale — without diluting your ownership, complicating your cap table, or handing a minority holder consent rights over your own deal.
• Or make it simple and portable. A Restricted Executive Bonus Arrangement gives the executive a benefit they can see and touch, funded with employer dollars, with a restriction that keeps them in the seat.
• Mind the 409A trap. Deferred compensation that accelerates on a sale must fit within the change-in-control rules of Section 409A. Get the definition of “change in control” and the payment triggers right in the document — not in a side letter three weeks before closing. A 20 percent penalty tax on your best executive is a terrible closing gift.
• If you fund with company-owned life insurance, satisfy 101(j) first. Employer-owned life insurance requires written notice and consent before the policy is issued. Miss it, and the death benefit that was supposed to be tax-free becomes taxable income. This is not fixable after the fact.

Years 3 to 2: Engineer the Tax Structure

• Revisit your entity choice while you still can. S corporation, C corporation, and partnership each produce a very different after-tax result on the same headline price.
• Look hard at qualified small business stock. For C corporation stock, Section 1202 can exclude a substantial share of your gain from federal tax. Under the 2025 changes, stock issued after July 4, 2025 gets a 50 percent exclusion at three years, 75 percent at four, and 100 percent at five — with a per-taxpayer cap of $15 million and a $75 million gross asset ceiling at issuance. Note the symmetry: a five-year runway is exactly the holding period for the full exclusion. Miss the window by a quarter and the cost is measured in millions.
• Front-load deductions in your highest-income years. A cash balance plan can generate six-figure annual deductions for an owner in the final high-earning years before a sale, moving money out of the corporate wrapper and into a protected retirement bucket at a discount.
• Model asset sale versus stock sale versus installment sale. Buyers want an asset sale for the step-up; you usually want stock. That gap is negotiable — but only if you know what it is worth to each side before the LOI.
• Evaluate personal goodwill. In the right facts, a portion of the purchase price allocated to personal goodwill is taxed once, not twice.

Years 2 to 1: Residency and Estate Tax Positioning

This is the step most owners skip, and it is frequently the most expensive one.

• Understand where you are domiciled — and what it costs. The federal estate tax exemption in 2026 is $15 million per person, $30 million for a married couple, at a 40 percent top rate. That leads a lot of owners to assume estate tax is someone else’s problem. Then they look at the state.
• The state thresholds are dramatically lower. Massachusetts starts at $2 million. Oregon at $1 million. Illinois at $4 million. Washington near $3 million. New York sits at roughly $7.35 million with a “cliff” that eliminates the entire exemption if you exceed it by more than 5 percent.
• Inheritance taxes are a separate problem. Pennsylvania taxes transfers to adult children at 4.5 percent, siblings at 12 percent, and others at 15 percent — with no meaningful exemption. New Jersey, Kentucky, Nebraska, and Maryland have their own versions.
• If you plan to move, move early. Changing domicile is a facts-and-circumstances test, and high-tax states audit it aggressively. Establishing residency two years before a sale is a plan. Establishing it two months before is an invitation.
• Do your gifting before the business is worth what it is about to be worth. Transferring non-voting interests to a trust while the valuation is lower — and while discounts for lack of control and marketability still apply — moves future appreciation out of your estate at a fraction of the eventual cost. Once a letter of intent is signed, that window closes.
• Fund the liquidity. An irrevocable life insurance trust holding a properly structured policy keeps the death benefit outside the taxable estate and gives your heirs cash to pay the tax without a fire sale.

The Final Year: Stress-Test the “What Ifs”

Every plan above assumes the sale happens as designed, on schedule, with you alive and healthy. Run the other scenarios: you die before closing, you become disabled, your co-owner dies, your buyer walks, your key executive leaves, the multiple compresses by two turns. Confirm your buy-sell agreement is funded, current, and consistent with your estate plan. A twelve-year-old buy-sell with a fixed price on the first page is a lawsuit waiting to happen.

Where RISR Fits

Most of this work stalls at the same place: the owner does not have a current, credible number for what the business is worth today, so every downstream decision — how much to gift, whether the retention plan is sized right, whether the after-tax proceeds actually fund retirement — rests on a guess.

We use RISR to close that gap. RISR pulls directly from tax returns and accounting data, normalizes earnings for owner compensation and one-time items, and produces an equity value using capitalization of earnings, EBITDA multiples, and revenue multiples. From there it becomes a planning instrument rather than a report:

• What does this business need to be worth for me to walk away and never worry about money?
• How much of my net worth is trapped in one illiquid asset — and what happens to my family if that asset stops working?
• What is the gap between today’s value and my target, and which specific levers close it in five years?
• What is at risk if I die, become disabled, or lose a partner before the exit?

That last set of questions is the whole point. Planning for all of life’s “What Ifs” is not a slogan — it is the difference between a valuation that sits in a drawer and a plan that survives contact with reality. Once the number is real, the retention plan, the tax structure, the gifting strategy, and the estate liquidity all get sized correctly instead of approximately.

Start the Clock

Five years is enough time to do all of this well. Two years is enough time to do some of it badly. If you are inside that window, the most useful thing you can do this month is work through this exit planning checklist and get a defensible baseline valuation and a written list of what stands between that number and the one you need.

Schedule a five-year readiness review and we will build your RISR valuation and What-If analysis together. You can also download our executive benefits planning guides or listen to The Perfect Plan® Podcast, where we walk through how these structures get reverse-engineered for real companies.

Schiff Executive Benefits has spent nearly two decades designing nonqualified deferred compensation, SERP, split dollar, phantom stock, and COLI-funded retention structures for closely held businesses. This article is for general education and is not legal, tax, or investment advice. Consult your own advisors before acting.