Financial Planning for Business Owners

As a business owner, financial planning isn't a layer of life management — it's intertwined with how your business is structured, compensated, and eventually sold. The moves that matter span tax, legal, and investment decisions simultaneously.

Stage 1 — Early business (revenue under $500K)

• Entity choice. Most start as sole prop or single-member LLC. File S-corp election (Form 2553) when profit exceeds ~$80K — FICA savings begin to justify the overhead.
• Retirement plan: SEP-IRA or Solo 401(k). Solo 401(k) is more flexible (Roth option, loans, higher contribution at same income). SEP is simpler. Both allow up to $72K/yr total contribution (2026).
• Separate accounts religiously. Business checking, business credit card. Never mix personal and business expenses.

Stage 2 — Growth (revenue $500K-$5M)

• S-corp reasonable compensation. Pay yourself a defensible W-2 salary (typically $80-200K for service businesses), take remainder as K-1 distributions (no FICA). Specialist advisor sets the number.
• Section 199A QBI deduction. 20% deduction on pass-through income, subject to phaseout rules. For service businesses (consulting, health, law), phaseout starts $406K MFJ (2026, per OBBBA-widened ranges).
• Retirement stacking intensifies. At this revenue, consider layering a Cash Balance plan on top of Solo 401(k). Combined $200-300K annual contributions possible.
• Key-person and disability insurance. The business depends on you; insure against the risk.

Stage 3 — Established business (revenue $5M+)

• C-corp consideration. At this scale, C-corp + QSBS treatment (IRC § 1202) for future sale can shield $15M+ of gain from federal tax (post-OBBBA, for stock issued after July 4, 2025).¹ Requires 5-year holding for full exclusion (3-year = 50%, 4-year = 75% post-OBBBA). Plan ahead.
• Buy-sell agreement with partners. Funded by life insurance. Triggers on death, disability, divorce, departure.
• Dynasty estate planning. Irrevocable trusts (IDGTs, GRATs) to move appreciating business equity out of your estate.
• Section 199A optimization. Structure wages, rental income, and retirement contributions to optimize QBI deduction.

Stage 4 — Exit planning (3-10 years before sale)

Business sale preparation. Key moves:

• Clean financials. Accrual-basis books, minimum 3 years of audited financials, separate personal expenses from business. Sellers lose millions when acquirer sees "owner discretionary" expenses they can't add back.
• Reduce owner dependency. A business dependent on the owner's relationships/skills sells for lower multiples. Build management depth.
• Normalize earnings. EBITDA adjustments (add-backs) need to be defensible. Above-market rent, family payroll, personal vehicles — clean up ~2 years before sale.
• Choose exit type. Strategic buyer (competitor), financial buyer (PE), ESOP, family succession, installment sale. Each has different tax/value profile.
• Pre-sale tax structuring. F-reorganization (S-corp to C-corp + LLC), charitable remainder trust for portion of proceeds, installment sale to defer tax.

Common mistakes

• Sticking with sole prop too long. Missing S-corp FICA savings costs $10-15K/year at mid-revenue.
• Only using a SEP-IRA. Much lower contribution ceiling than Solo 401(k) at the same income.
• Missing Section 199A. Leaving 20% deduction on the table.
• No buy-sell agreement. If you die, your partner and your spouse end up unintentional business partners.
• Exit decision too late. The 2-year run-up matters; deciding to sell "next year" usually yields 60-80% of achievable price.
• Not doing QSBS when eligible. Forever giving up a $15M federal tax exemption (post-OBBBA) because of wrong entity structure choice at formation.

Sources

1. Holland & Knight — OBBBA Section 1202 Changes (July 2025). $15M / $75M / tiered 3/4/5-year.
2. IRC § 199A — QBI Deduction (permanent post-OBBBA, 2026 thresholds $203K single / $406K MFJ).
3. IRS Form 2553 — S-Corp Election.
4. IRS — Solo 401(k) (2026: $72K combined cap).
5. IRC § 453 — Installment Sale Method.
6. IRC § 1042 — ESOP Rollover Tax Deferral.

Business-owner planning verified against IRC and OBBBA (July 2025) as of April 2026. Entity and exit strategies require coordinated CPA + attorney + fee-only advisor review.