We are five years away from our target exit and want to begin our runway. What foundational tax, legal, and operational steps must we take today to avoid transaction friction later?

Question

Tyler Smith · Accepted Answer

Starting your preparation five years out gives you a massive advantage because you can make structural changes that are impossible to execute at the last minute. The first step is to clean up your legal and tax foundation. Work with an exit focused tax strategist to evaluate your corporate structure. Transitioning from an LLC or an S Corporation to a structure that qualifies for Section 1202 Qualified Small Business Stock tax treatment, for example, can save you millions in federal capital gains taxes, but it requires a five year holding period to qualify. On the operational side, use this long runway to eliminate owner dependency. Begin by auditing your daily activities and identifying every decision that requires your personal approval. Use the Accountability Chart to systematically delegate those decisions to your leadership team. You should also start reviewing your customer concentration risk. If any single client represents more than fifteen percent of your revenue, use your V/TO to set a strategic goal to diversify your client base over the next three years. Five years is also the ideal time to review your technology stack and document your core processes. By starting early, you can implement AI powered systems and document your procedures slowly and thoroughly, making them a natural part of your culture rather than a rushed project for due diligence.