For Subscribers

The High Costs of Your Exit Strategy Whether it's a divorce or an M&A transaction, divesting can have lasting effects

By Steph Wagner

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

In my prior life as an investment banker working in M&A, my objectives for any client were strictly transaction-based: Prepare the company for the sale, go to market and close a deal that puts the greatest amount of after-tax dollars in the owner's pocket. I paid little (if any) attention to what happened to the client afterward.

It wasn't until I began working as a financial strategist for a number of people going through divorce that I gained a new perspective. After all, a divorce is essentially an M&A transaction, a divestiture of two entities that once merged. In both cases, a successful transaction is one that maximizes the net proceeds to the individual and preserves his/her net worth long after the court documents are filed.

Too often entrepreneurs are hyperfocused on the value of the sale and fail to adequately consider all financial implications, including whether the payout will truly cover their lifestyle and income needs. The two most common financial oversights entrepreneurs make are underestimating how many of their everyday expenses are being subsidized by their business—medical and life insurance premiums, club memberships, vehicles, travel and entertainment costs, etc.—and overestimating the amount of after-tax investment income that can be generated from the proceeds of the sale.

Entrepreneurs also face the difficult challenge of giving up some control of their wealth—the wealth that, until the sale, was tied up in their business, an illiquid asset that they nonetheless managed. Moving that asset into a well-diversified investment portfolio, one that maximizes after-tax income while continuing to build wealth, requires ceding some control to experts, including, but not limited to, a financial advisor, a CPA and an estate-planning attorney.

Transitioning through life's milestones isn't always easy. Whether you exit a business or end a marriage, the steps taken after securing the payout are as consequential as the ones taken to obtain it. This leads me to my last piece of advice: Don't rush it.

According to Douglas Freeman, executive vice president and director of trust services and consulting at First Foundation Bank in Irvine, Calif., an effective succession plan for a business owner requires anywhere from three to five years to play out. "The reason is twofold," he says. "First, to maximize the total enterprise value of the business, and second, to prepare yourself for life after the transaction."

Five years may feel like an unreasonable amount of time to work through this process. But the way I see it, devoting these years to making sure the previous 20 support the next 20 is a small price to pay.

Steph Wagner is a private equity investor and a financial strategist focused on guiding women to financial independence.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Business News

5 Generations, 1 Team — Heres How to Lead a Multigenerational Workforce

Great leaders turn age gaps into advantages. Here's how leaders can lead each generation.

Thought Leaders

These 5 Quotes Will Keep You Motivated No Matter Where Your Startup Journey Takes You

Discover five powerful quotes that inspire entrepreneurs at every stage of the startup journey — from idea to scale. A must-read for founders seeking motivation and clarity.

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

Collaboration

I've Been an Entrepreneur For 30 Years — Here's What You Need to Know About Choosing the Right Business Partner

Choosing the right business partner can significantly impact your venture's success. Much like a marriage, a partnership requires trust, communication and a shared vision.

Living

This Keepsake Reminds Me of My First Dream — And Why I'm Grateful It Never Came True

Sometimes the best path for us is one we never could have imagined.

Science & Technology

101 Small Business Ideas to Match Your Personality, Investment, Skills & Goals

Still stuck on what biz to start? Use AI to uncover 101 custom ideas aligned with your skills, values & lifestyle—plus a 90-day roadmap to launch with clarity.