Planning to Sell Your Business in the Next 5 Years? The Most Expensive Mistake May Already Be Happening.

Planning to Sell Your Business in the Next 5 Years? The Most Expensive Mistake May Already Be Happening.

Todd Villarrubia, Esq., on building your exit runway and converting a lifetime of business ownership and wealth accumulation into a financial family platform that can endure for generations.

Chris J Snook and Todd Villarrubia

Oct 30

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Preview

If you own a profitable business and expect to sell it within the next three to five years, this may be one of the most financially consequential articles and ATOMIQ LEVEL conversations you read and listen to this year. Not because my guest promises a magical strategy to make taxes disappear, but because he helps us examine a fundamental problem that too many successful business owners discover only after the most important financial transaction of their lives is already underway.

You can spend thirty years becoming exceptionally good at creating wealth and still enter your exit without a coordinated plan for preserving it.

My guest, Todd Villarrubia, is a New Orleans-based tax attorney, estate-planning specialist ranked in Worth Magazine’s Top 100 list, and the founder of Wealth Planning Law Group and Fountainhead Global, a fractional family office organization. Todd earned his Master of Laws in Taxation from Emory University in 1992 and has spent more than three decades helping business owners and high-net-worth families address increasingly complex wealth-planning problems.

We began by exploring the influences that shaped his worldview, the education that led him into tax law, and the difference between traditional estate planning and genuinely coordinated wealth management. Eventually, we arrived at a hypothetical business owner who is 65 years old, generates substantial annual income, and expects to sell a closely held company within five years.

That is where the conversation became particularly useful.

I asked Todd to walk through what might happen if an owner began establishing a more sophisticated retirement-funding structure several years before selling, then evaluated an installment-sale arrangement before transferring the business, and finally constructed a post-sale plan designed to generate income while protecting the proceeds.

We discussed §412(e)(3) fully insured defined-benefit plans, cash balance plans, employee coverage rules, asset protection, tax-efficient ownership, family trusts, and the mechanics and risks of installment-sale strategies. We also examined the role of a fractional family office in coordinating the specialized professionals who too often work independently of one another.

The lesson is not that every owner should implement these strategies. They can carry high costs, restrictions, legal complexity, and tax exposure. Some are unsuitable for particular businesses, while others require careful implementation long before a transaction is contemplated.

The lesson is that the owner who begins asking these questions a year or more before a sale may have planning opportunities that no longer exist once the deal has been negotiated.

This is where my broader thesis about the transition from real-economy wealth to financial-economy wealth becomes practical. A lifetime of you being at work should create the opportunity for generations of your money being at work. But that transition must be designed and is anything but guaranteed.

This article examines both sides of the transaction, from what an owner should consider before selling to what a family must be prepared to manage after the cash arrives.

Connect With Todd Villarrubia

• Email: [email protected]

• Direct telephone: 504-982-8207

• Substack Todd Villarrubia

I also encourage you to buy and read Todd’s recent #1 Amazon bestseller in the Small Business category.

Disclaimer: This article is educational and informational. The strategies discussed depend heavily on the owner’s legal entity, workforce, ownership history, state of residence, tax status, transaction terms, and funding capacity. Retirement-plan contributions are subject to actuarial, coverage, nondiscrimination, funding, deduction, and other requirements. Installment-sale arrangements require separate legal and tax analysis, and not every structure marketed under that label qualifies for the tax treatment being promoted.

The Tax Attorney Behind the Plan

The first thing that caught my attention about Todd was the artwork behind him.

At first glance, the collection looked like a wall of historical mugshots. I asked whether one of the figures was John Dillinger and joked that I might have joined the wrong livestream. Todd explained that the collection featured various people who had been arrested, including recognizable cultural figures.

For an attorney whose professional life revolves around protecting wealth and designing legal structures, it struck me as an entertaining backdrop. I also found myself thinking about the irony that our discussion would eventually focus on avoiding the kinds of expensive legal problems that can turn a lifetime of productive work into a much less enjoyable experience.

But the more revealing part of Todd’s story came when I asked who had shaped his thinking.

He immediately named a professor.

Susan Kalinka, whom Todd studied under at LSU Law, introduced him to the intellectual depth of tax law. He took seven classes with her, and she encouraged him to pursue an advanced tax degree at Emory University in Atlanta. He completed that program in 1992 and later qualified for board certification in estate planning and administration in Louisiana.

He also credited other professors and mentors who helped shape his professional development. What emerged was a portrait of someone whose expertise had been built through sustained, specialized training and decades of working with the consequences of legal and financial decisions.

Another influence arrived much earlier. In high school, a girlfriend introduced him to Ayn Rand (best known for the books The Fountainhead and Atlas Shrugged), and that exposure eventually helped inspire the name Fountainhead Global. Todd’s interest in the relationship between productive enterprise, ownership, independence, and wealth protection was shaped partly through literature and partly through his professional education.

I found that combination interesting. His career has been devoted to the technical application of tax law, yet the motivation behind his work is grounded in a broader question about what people should be able to do with the wealth they create.

Our conversation was not about accepting any particular political or philosophical worldview. It was about understanding how Todd approaches the relationship between the individual who creates wealth and the legal structures intended to preserve it.

His career moved through private practice, work at a real estate law firm, partnership at a major local firm, and eventually a return to independent practice. Throughout that journey, tax planning remained central to his professional identity.

That matters because entrepreneurs frequently experience a frustrating division of professional responsibility. The business attorney explains the operating agreement. The CPA prepares the return. The estate attorney drafts the trust. The financial advisor manages the portfolio. The insurance specialist recommends coverage.

Yet nobody may be responsible for ensuring that all five components work together before a business is sold.

The client assumes the professionals are coordinating, even though the organization of the advisory team may not require them to do so.

The Most Expensive Planning Gap Is Between the Advisors

I asked Todd about a situation I have encountered repeatedly. An owner hires legal counsel to establish a company, structure its ownership, and prepare the necessary agreements. Several years later, when a consequential transaction arises, that owner is told a specialized tax attorney must now review the structure.

The owner often responds with understandable confusion. Wasn’t tax efficiency part of why the attorney was hired in the first place?

Todd explained that advanced tax work requires a specialized understanding of statutes, regulations, judicial decisions, and their interaction. CPAs, business attorneys, estate attorneys, tax attorneys, actuaries, and other professionals each bring different expertise, but their responsibilities and training are not identical.

To be clear, an experienced CPA specializing in taxation can be an extraordinarily valuable member of a planning team. The issue is not whether one credential automatically makes a professional superior to another. The issue is whether the professionals collectively possess the expertise required for the transaction and are operating from a common understanding of the client’s objectives.

A sale involving a profitable business can expose weaknesses in corporate structure, compensation design, pension funding, estate planning, asset protection, and the allocation of transaction proceeds. Those weaknesses may have existed for decades without causing an obvious problem.

Then a buyer appears.

Suddenly, a decision made fifteen years earlier affects the tax character of the transaction. A potentially attractive retirement-funding strategy requires years of prior implementation. An intended ownership transfer may no longer produce the anticipated result because the buyer, price, and transaction terms are already substantially established.

This is why I believe the real planning failure frequently occurs before the transaction begins.

The owner mistakes preparation for something that can be purchased once the need becomes urgent.

Some preparation can be accelerated. Other opportunities depend on time, documented intent, genuine economic substance, and earlier implementation. Those conditions cannot always be manufactured after the fact.

That distinction should be uncomfortable for any business owner who has entered the final five years before a planned exit without assembling a coordinated professional team.

A Year or Two Is Not a Long Time When You Have Thirty Years of Wealth to Protect

Eventually, I asked Todd to imagine a specific owner.

The owner is approximately 65 years old. The company produces meaningful annual cash flow, perhaps around $2 million in our simplified example, and could eventually sell for $10 million to $20 million. The founder has spent decades employing people, developing customer relationships, navigating difficult markets, and converting personal effort into enterprise value.

Now retirement is approaching, and the questions have changed.

The owner is no longer concerned exclusively with growing revenue, improving margins, or increasing the multiple a buyer might pay. The next chapter requires an understanding of personal income security, taxes, liquidity, wealth preservation, and the future needs of the family.

The questions become more consequential:

• How much after-tax income will I need once I no longer receive distributions from the company?

• Can I maintain my lifestyle without running another operating business?

• What happens to employees and management after the sale?

• How much of the headline purchase price will remain after taxes, debt, transaction expenses, and other obligations?

• Which assets should be protected, invested, gifted, or reserved?

• How should I provide for my spouse and children?

• How much investment risk will I need to accept to support my desired lifestyle?

• What must be done before negotiations become binding?

These questions are related, but they are not interchangeable.

An owner could maximize the purchase price while accepting unfavorable transaction terms. Another might minimize current taxable income while inadvertently depressing a financial metric used by buyers. A third could create an attractive estate structure without preserving enough personal liquidity to support retirement.

The objective is not to optimize one number. It is to coordinate several outcomes.

That is why the final five years before a sale should be treated as a deliberate planning runway rather than a waiting period.

The Five-Year ATOMIQ EX!T Planning Runway

This schedule is a planning framework rather than a rigid formula. It could be accelerated to 5 or 6 months if needed, but for those who have the time, it’s never too soon to implement the planning. Some businesses require a longer runway, and certain opportunities may be unavailable regardless of when planning begins.

Nevertheless, the principle stands: an owner expecting to sell in one to five years should already be working on the transaction’s personal financial consequences.

Can the Business Fund More of Your Retirement Before You Sell?

Todd’s first suggestion for our hypothetical 65-year-old owner was to evaluate a §412(e)(3) fully insured defined-benefit pension plan or a cash balance plan.

The suggestion immediately captured my attention because it speaks directly to the difference between extracting income from a business today and using the business to fund income security for tomorrow.

For many small-business owners, retirement planning has been handled through familiar defined-contribution arrangements such as 401(k) plans and IRAs. These can be effective tools, but a defined-benefit arrangement operates differently.

Instead of beginning exclusively with an individual annual contribution limit, a defined-benefit plan begins with promised retirement benefits and calculates the funding required to support those benefits under applicable rules.

That difference can be meaningful for an older, highly compensated owner who has substantial income and relatively limited time remaining before retirement.

A §412(e)(3) plan is a particular form of defined-benefit arrangement funded through qualifying insurance or annuity contracts. It is not an unrestricted savings account, and it is not a legal mechanism for shifting unlimited owner income into a private tax shelter.

During our conversation, Todd described clients in their sixties making very substantial annual contributions under appropriate circumstances, sometimes exceeding $1 million.

Those figures are possible only under particular facts. The permitted contribution and resulting deduction depend on plan design, compensation, age, benefits, actuarial calculations, funding requirements, and applicable law.

The practical importance of the strategy is not any single contribution amount. It is the possibility that an owner might use a properly designed employer pension plan to accumulate retirement benefits while the company is still producing substantial income.

That introduces a different question into the exit process.

Instead of relying entirely on the eventual sale proceeds to fund retirement, could a portion of retirement security be established during the company’s final years under the founder’s ownership?

If so, the owner may enter the transaction with greater flexibility because some retirement funding has already been addressed separately.

The Employee-Coverage Question That Changed the Conversation

This was one of the most useful moments in the interview because I pushed Todd beyond the simplified benefits discussion.

If a business employs ten people, can the owner establish a pension arrangement that primarily benefits themselves? Must every employee participate? Could an owner create a holding company with only a few family members on its payroll and place the pension plan there?

Todd explained that certain employees can be excluded under applicable rules and that benefits need not necessarily be economically identical across every participant.

But when I suggested using an affiliated company to narrow employee participation, he immediately rejected that as a reliable shortcut.

Retirement-plan rules consider common ownership and relationships among entities. An owner cannot necessarily avoid employee-coverage requirements by placing a pension plan inside a newly created company.

That is exactly the kind of clarification I want these conversations to produce.

The relevant rules can include controlled-group aggregation, minimum participation and coverage, nondiscrimination, compensation, funding, and other requirements.

There is no universal rule under which a business owner can simply exclude a particular percentage of employees and direct nearly all contributions to themselves.

The percentages discussed in our conversation were illustrations of possible plan economics, not a substitute for a plan-specific legal and actuarial analysis.

The planning opportunity may be real, but so is the obligation to design the plan correctly.

For a business owner approaching an exit, that has consequences. A plan must account for employee eligibility, annual funding commitments, insurance or annuity requirements, future obligations, and the effect of an acquisition or plan termination.

The strategy must be evaluated alongside operating cash flow and the proposed transaction structure.

Pension Contributions Are Not Free Money

I also explored whether funding a pension arrangement before a sale could interfere with enterprise valuation.

My simplified question was whether an owner could make several years of deductible pension contributions, preserve the company’s underlying earning power, and still sell the business at a conventional earnings multiple.

The answer requires more precision than our hypothetical allowed.

Pension contributions are real employer costs. They can affect reported earnings, cash flow, working capital, and buyer diligence.

A buyer might evaluate certain expenses as adjustments to normalized earnings, depending on the circumstances. But an owner should not assume a million-dollar pension contribution reduces taxable income without affecting any financial metric used in valuation.

The analysis needs to consider the contribution’s accounting treatment, recurring nature, the buyer’s expected benefit structure after closing, plan liabilities, and the transaction’s definitions of adjusted EBITDA, indebtedness, and working capital.

This is one reason the tax advisor and the exit advisor should be in the same room.

A strategy that appears attractive from one professional perspective may be less attractive when the complete transaction is considered.

The objective is not simply to claim a deduction. It is to improve the owner’s overall after-tax, after-cost, risk-adjusted outcome.

Cash Balance Plans and Fully Insured Plans: Different Tools for Different Jobs

Todd contrasted fully insured defined-benefit plans with cash balance plans, which are another type of defined-benefit arrangement but can have different investment, funding, and benefit characteristics.

For the owner, the comparison should not be reduced to which plan creates the largest potential current deduction.

A serious evaluation should consider contribution capacity, employee economics, investment structure, funding obligations, administrative requirements, benefit distributions, and treatment upon a business sale.

A cash balance plan may offer a different risk and investment profile from a qualifying fully insured §412(e)(3) arrangement. A fully insured plan may provide particular contractual guarantees, but those guarantees depend on the terms of the insurance or annuity contracts and the financial strength of the issuing company.

The owner must also understand what happens if operating income declines before the sale. A strategy that depends on sustained annual funding may become problematic if company cash flow weakens or the expected exit is delayed.

These are meaningful distinctions for someone approaching retirement who may have limited opportunities to recover from a serious capital loss or unexpectedly large funding obligation.

The owner should determine which risks to accept, which risks to transfer, and which commitments can realistically be funded.

That is the beginning of an income-security doctrine, not merely a tax-deduction strategy.

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