Unlocking the Power of Early Tax Planning in Exit Planning: Seize Opportunities at the Discover Gate and Skyrocket Your Clients' Success

As exit planning advisors, we play a crucial role in guiding our clients through the complex process of transitioning their businesses. While many aspects of exit planning are critical, one area that often doesn't receive the attention it deserves is early tax planning for a sale. I'm here to make the case that initiating tax planning at the end of the Discover Gate stage is not just beneficial but essential for maximizing value and minimizing tax liabilities for our clients.

The Discover Gate: A Pivotal Moment for Tax Planning

The Discover Gate is the point where our clients have a general understanding of their company's value and the steps needed to address problems and create "Value Acceleration." It's a pivotal moment in the exit planning process, and it's also the perfect time to start tax planning. Why? Because the earlier we start, the more opportunities we have to exempt future growth and value from tax, and also add non-tax benefits.

Consider this: if we begin tax planning when the business is at a lower value, before it's fully primed for maximum sale value, we can structure the business and the exit in a way that takes advantage of available substantial tax benefits and cost savings. 

A Relatable Example: The House Flip

Here's an everyday example. Imagine you have a client who purchases a house or commercial building in disarray, renovates it, and then resells it at a 100% profit. When should your client move the property out of his or her estate for estate planning purposes? Should it be when the value is low, before it doubles - or when the value is 100% higher a year later, after revamping? You would likely recommend moving the asset out of the estate at the lowest possible value to maximize your client's unified credit exemption. In this example, your client would literally cut their estate tax cost on the property in half, because the growth in value took place out of their estate. 

The Power of Value Acceleration and Early Tax Planning

With EPI's Value Acceleration process, the benefits can potentially be even more impactful. By beginning advanced pre-exit tax planning at the end of the Discover Gate, not only can you help your client reduce estate taxes if that is their objective, but they can also do the same with capital gains taxes, eliminating them on the gains stemming from Value Acceleration, and obtaining a step up in basis at their death on whatever is left over from the sales proceeds of the business.

Case Study: Sarah, a business owner, engaged with her exit planning advisor at the Discover Gate stage. By implementing early tax planning strategies, Sarah was able to exempt a significant portion of her business's future growth from tax and minimize her estate and capital gains tax liabilities. When she eventually sold her business, Sarah kept significantly more of the proceeds, enhanced the level of asset protection, and set herself up for a comfortable retirement, while creating a larger inheritance for her loved ones.  

The Cost of Waiting: Missed Opportunities and Higher Taxes

In short, every incremental step you take to help your client add value to his or her business creates additional tax exposure. Wouldn't it make far more sense to obtain the growth in a tax advantaged ownership structure? By waiting until the business is further along in the Value Acceleration process, we miss out on these opportunities and potentially expose our clients to higher tax liabilities and less benefits. 

Proactive Planning for a Smoother Transition 

Moreover, early tax planning allows us to identify and mitigate potential pitfalls that could derail the exit process down the line. By proactively addressing these issues, we can ensure a smoother, more successful transition for our clients. This is where our expertise as advisors comes into play – we have the knowledge and experience to navigate the complex world of tax planning and help our clients make informed decisions. 

Building Deeper, More Profitable Relationships 

But the benefits of early tax planning go beyond just minimizing taxes. By engaging with clients at the Discover Gate stage, we have the opportunity to develop deeper, more entangled relationships. We go from simply being an exit planning “consultant” to becoming their trusted advisors, adding value "right out of the gate," in ways that none of the client's other advisors have likely ever even contemplated. The planning that is done at the end of the Discover Gate leaves clients with the understanding that you are invested – and requisite - in their long-term success, not just the immediate transaction. This positions you to provide ongoing value and support, long after the exit is complete. It also positions you with a strategic advantage in your market, distinguishing you from other advisors who lack you and your team's sophistication and capabilities.  

Your Call to Action: Prioritize Early Tax Planning Now  

So, my fellow exit planning advisors, I urge you to make early tax planning a priority in your practice. Develop a relationship with a team of professionals who are nationally renowned in advanced exit tax planning strategies. Start the conversation with your clients at the Discover Gate stage, and work with them to develop a comprehensive strategy that supports their goals and maximizes value. By doing so, you'll differentiate yourself as a trusted advisor who goes above and beyond to deliver results.

Don't wait until it's too late. Embrace the power of early tax planning and give your clients the edge they need to succeed. Schedule a meeting with your clients today and start the conversation about incorporating the planning into their exit strategy from the very beginning.

In the end, early tax and asset protection planning is a win-win proposition. Our clients benefit from tax savings, as well as significant non-tax benefits and a smoother exit process, while we have the opportunity to build long-lasting, profitable relationships. Seize this opportunity to work with a team of specialists who can provide an immediate boost to your perceived value, while increasing the income and profitability of your own practice. Make early planning a cornerstone of your exit planning approach. Your clients will thank you for it. 

Meet The Author

Brad Barros brings over 35 years of leadership in risk mitigation, adept at resolving complex issues and pioneering industry advancements. His extensive experience includes founding and steering various life and casualty insurance entities, launching a global joint venture with a "Big 8" NYSE-listed CPA firm, and establishing two national consulting firms that offer customized strategies for AI risk management and sophisticated tax solutions tailored to family offices, high-net-worth individuals, and professionals in entertainment and sports. 

An alumnus of the University of Delaware, Brad is passionately committed to philanthropy, actively supporting the B+ Foundation and Casey Cares Foundation.

For more information, he can be reached at BBarros@privateriskpartners.com or through JSellers@privateriskpartners.com.