Exit Planning Archives - Your ExitMap

NQDCs – Funding and Forfeiture

April 13, 2026 by John F. Dini

In our article on March 20th, we discussed Non-Qualified Deferred Compensation (NQDC) plans as a tool to compensate key employees for achieving long-term goals. One component of such plans is the fact that they are frequently unfunded and legally considered an unsecured promise to pay.

Nonetheless, both plan sponsors and recipients often want a funding mechanism to set aside assets, manage cash flow, or hedge the liability. In addition, employers typically want conditions under which they can rescind the plan for cause, including failure to achieve the objectives the plan was designed to incentivize.

Funding Mechanisms

For cash-based plans, there are four common ways to fund the plans.

Pay as you go. Goal-based success is paid in cash as a bonus. This has the advantage of immediate expensing against profits. Amounts can still be based on progress toward longer-term goals, but there is little accumulation of a larger benefit toward a significant future payout.
Reserve accumulation. The company sets aside funds equivalent to the amount earned toward an eventual payout. This appears as an asset on the balance sheet and has no tax deductibility until paid. Although it may give the employee some mental assurance, this asset can still be attached by creditors and has no legal segregation from the company’s other holdings.
Rabbi Trust. This is an irrevocable trust specifically formed for the accumulation of NQDC benefits. The company cannot use the funds for another purpose, so the employee has an added level of confidence in the availability of future payment. However, the assets are not secured from creditors, and unwinding the trust in the event of the employee’s termination can be problematic.
Company Owned Life Insurance (COLI). The accumulated benefit provides tax-deferred growth, liquidity via cash values, and reimbursement via death benefits. The asset helps to offset the accumulating liability of the NQDC on the balance sheet. The plan may define a transfer of beneficiary upon qualification or pay out the bonus in cash and keep the policy in force for a future payout.

Vesting and Forfeiture

Vesting in a plan can be structured in various ways.The most common method is based on tenure: there is an ultimate goal, and the beneficiary is entitled to a percentage of the reward each year until the full value is reached.

It may be 10% vested each year for ten years, or vesting may follow an increasing scale (e.g., 5% in the first year, 10% in the second, 15% in the third). Some plans include “cliff vesting”: the employee has no claim on the award until, and unless, the full vesting period is completed. Vesting can also be tied to the percentage of goals met each year.

Of course, “the best-laid plans of mice and men often go awry.” Sometimes the employee doesn’t work out. Life events may intervene, and the employee may terminate voluntarily—or performance may falter and they are no longer a candidate for continued participation.

That is why the legal documentation of any NQDC is critical. Most agreements read much like a buy-sell contract among shareholders. The employer and the employee are making long-term commitments to each other, and their terms of separation are best addressed at the outset.

Note: This article and the previous one on plan structuring are intended as an overview for advisors to business owners. Non-Qualified Deferred Compensation is complex and should be designed with the guidance of legal and tax advisors.

John F. Dini develops transition and succession strategies that allow business owners to exit their companies on their own schedule, with the proceeds they seek and complete control over the process. He takes a coaching approach to client engagements, focusing on helping owners of companies with $1M to $250M in revenue achieve both their desired lifestyles and legacies.

Business Ownership Isn’t What It Used to Be

March 30, 2026 by John F. Dini

If you’ve been a business owner for a long time, you’ve lived this shift firsthand.

Many Baby Boomer owners started out alone—just an idea, a customer, and a willingness to take a risk. Hiring that first employee was a milestone. Now, years later, some of those same businesses employ dozens or even hundreds of people.

And every one of those people comes with rights, protections, and obligations that ultimately land on you.

As a business grows, so does the owner’s exposure—to legal risk, regulatory risk, financial risk, and reputational risk. Ownership doesn’t just mean opportunity anymore; it means responsibility layered on responsibility.

Why Fewer People Choose Ownership Today

For someone starting a business now, the barriers look very different than they did 30 or 40 years ago.

Outside of purely digital or internet-based ventures, most new businesses face compliance rules, licensing hurdles, and capital requirements that simply didn’t exist when many established owners got their start. It’s no surprise that many capable people look at those risks and conclude that employment feels like the safer choice—for themselves and for their families.

Licensing alone tells the story. Today, well over a thousand professions require state-level licenses. Nearly one in three workers needs government permission or oversight to do their job—and when they don’t comply, the liability often falls on the business owner.

This includes professions ranging from doctors, lawyers, and engineers to barbers, cosmetologists, designers, trainers, and technicians. In 1950, only a small fraction of U.S. jobs required a license. Today, it’s approaching a third of the workforce.

For owners, that means more rules, more monitoring, and more risk—even when you’re doing everything right.

The Freedom Paradox

Here’s the paradox: America is still one of the best places in the world to own a business.

We score highly on things that matter—strong rule of law, access to credit, contract enforcement, and systems that allow businesses to fail, restructure, and start again. Those freedoms are real and valuable.

At the same time, many of the day-to-day realities of ownership are getting harder.

Taxes are complex. Exporting is cumbersome. Registering property, starting a business, connecting utilities, and dealing with regulated systems can feel slow, opaque, and frustrating. Not coincidentally, these are the areas most tightly controlled by government processes.

So while the system protects enterprise in theory, the practical burden of ownership keeps rising.

How Ownership Is Quietly Changing

One of the biggest shifts isn’t regulatory—it’s structural.

Private equity and institutional capital have stepped in to assume many of the risks of ownership. In doing so, they’ve converted large numbers of would-be entrepreneurs into highly compensated employees.

The leader of a private equity–owned company may have authority, incentives, and status—but they are still an employee, while the real risk is borne elsewhere.

This is a fundamental change in how entrepreneurship works in America, and many long-time owners don’t fully appreciate how different the landscape has become.

What This Means for You

If you’re a business owner—especially one thinking about the future—this context matters.

Ownership today carries more risk, more complexity, and more tradeoffs than it did when many businesses were built. That makes thoughtful planning more important, not less.

Understanding how the rules have changed, how capital has shifted, and how control is being redefined can help you make better decisions about growth, succession, and exit—on your terms.

The goal isn’t to romanticize the past or fear the future. It’s to recognize that ownership has evolved—and that navigating it well now requires clarity, education, and intentional choices.

NQDCs – “Let Me Count the Ways”

March 20, 2026 by adminex

Non-Qualified Deferred Compensation (NQDC) plans are a powerful tool for incentivizing and retaining key employees. They offer virtually unlimited flexibility in methodologies, objectives and rewards to suit a company’s strategies and goals.

What is “unqualified?”

Quite simply, NQDCs are discriminatory. Some owners shy away from that term, but discrimination isn’t automatically illegal. Illegal discrimination in the workplace is when an employer or manager treats an employee unfairly due to their race, color, religion, sex, national origin, age (40 or older), disability, or genetic information. 

Non-qualified plans discriminate because they aren’t offered to everyone. The Employee Retirement Income Security Act (ERISA) sets standards for employee benefits. Retirement and health plans must be offered equally to all employees. It does not apply to incentive compensation. As long as the requirements for participation don’t include one of the factors in the paragraph above, it is perfectly legal to discriminate between employees.

There’s a catch, of course. ERISA also allows employers to set aside benefit costs as a pre-tax expense, thus reducing taxable profits. NQDCs have no such advantage. They can be expensed when paid, but the accrual of benefits earned under that plan is a liability rather than an expense.

Therefore, employees should be informed that these plans are unfunded. They are dependent on the company’s ability to pay them when they are due. We will discuss funding and payment in the next article.

What should be incentivized?

The term “deferred” indicates that NQDCs should be used to recognized performance over a period of time. Typical targets include growth in company value, improvements in cash flow or profitability, revenue growth, employee turnover, brand reputation, acquisitions, customer satisfaction and geographic expansion.

Goals can be mixed, prioritized or laddered. For example, vesting may be tied to the employee’s tenure, plus payout levels tied to profitability. Bonuses can accrue based on growth in revenue or profits, with the percentage of payout linked to new products or territorial initiatives.

Half of the awards may be tied to company goals, with the other half linked to individual or departmental objectives. A percentage of any award may be tied to EBITDA, with another percentage dependent on safety benchmarks and another tranche to leadership development.

NQDCs often include virtual equity measures, such as Stock Appreciation Rights (based on a percentage of the growth in value of the business) stock options or phantom stock.

In all cases the recipients of any awards should have a scorecard that plainly outlines their qualifying metrics and time frames.

Who should receive NQDCs?

The complexity of variables indicates that recipients should have several qualifications. First, they must be in a position to affect the outcomes desired. Their decisions should have a direct impact on the incentive calculation.

Second, they need day-to-day visibility into the components that make up the goals. Handing them numbers at the end of the month has little effect if the recipient doesn’t know which levers to pull to make those numbers happen.

Finally, the employees who receive NQDCs should be “keepers.” These plans are not suited for remedial behavioral modification. They are to reward those who are critical to the organization’s success. Ideally, the company wants them to continue performing their duties at a high level for the rest of their career.

Note: This article and the following one (on vesting and funding) are intended as an overview for advisors to business owners. Non-Qualified Deferred Compensation is complex and should be designed with the help of legal and tax advisors.

Manufacturer Stuck in the “Neutral Zone”

March 6, 2026 by John F. Dini

Here is how exit planning helped a business owner out of the Neutral Zone.

This manufacturer reached out to an exit planning consultant after receiving a book on planning as a gift from a local professional. He was in no particular hurry to leave his business. In the preceding twenty years of ownership, he had grown it from a local vendor to home builders into a nationally known specialty house.

The company provided him with a good living, generating roughly $700,000 a year in free cash flow for each of the previous five years. He wanted to continue for at least a few more years but also was concerned that he do the right things to maximize his price when the time came to move on.

What’s the Problem?

The consultant pointed out several issues that could dramatically impact his eventual transition.

First, he was handling too many duties that should be delegated. These weren’t things that required his special expertise, but rather areas where he was comfortable in just “taking care of it.” These included troubleshooting IT problems. Although the company had a full-service contract for those services with an outside vendor, he felt it was just “faster” if he first tried to fix the issue himself. Owner centricity is a major value killer in a sale.

On large orders, he prepared the price quotes personally. There were several employees in the sales department who did the majority of quotes, but after one had made an expensive error, the owner took any order over a certain dollar amount as his personal responsibility.

The consultant also pointed out that the business was in the “Neutral Zone” regarding profitability as the principal factor in valuation. With $700,000 in cash flow, it was too big for most entrepreneurial owner-operators to afford.

On the other hand, it was too small to attract a private equity or strategic buyer. Professional acquirers typically pay higher multiples but are seldom interested in acquisitions with less than $1,000,000 in cash flow.

Longer-Term Preparation

The owner retained the consultant as a coach to keep him on track as he addressed the issues. In the next few years, the company made a small acquisition resulting in a second location and greater production capacity. They hired a sales manager who could handle major quotes. At the exit planner’s recommendation, the owner implemented EOS with a different consultant for greater accountability in the management team.

A key employee who, like the owner, had also been a “jack of all trades” enjoyed an incentive program based solely on the company’s gross profit over a fixed level. The consultant pointed out that the improvements driving growth would very quicky make this employee wealthy without any increase in responsibilities. Fortunately, the employee resigned for personal reasons before this became an issue.

For the other employees, they installed new incentive programs based more on increasing profitability. Key employees also received stay bonuses and long-term synthetic equity incentives. This initially caused some concern, (“Are you selling the business?”) but that quickly died down when it became plain that no changes were imminent.

Breaking Out of the Neutral Zone

The next five years brought ups and downs. COVID first reduced sales, then created a surge that couldn’t be duplicated. Eventually the company settled into a sustainable growth pattern, reaching well over $1,000,000 in EBITDA. Of course, there were multiple inquiries about selling during this period. However, the owner felt none of them satisfied his goals for a rewarding life after the business.

His efforts to change the value of his business were driven by the clear personal objectives developed with the planner, rather than just a pursuit of growth for growth’s sake. Eventually he agreed to sell the business to a strategic acquirer for roughly twice the value of an appraisal that was done at the beginning of the process.

None of the changes made were earth-shaking. Having a goal, the means to track it and a framework for moving towards it translated into millions of additional dollars in the owner’s pocket. He was comfortable with a transaction that also preserved his legacy and his employees’ futures.

Is your client ready for a transition? Have them take our 15 minute assessment.

How Much does the Big Picture Count?

February 17, 2026 by John F. Dini

It is currently difficult to have a business conversation without discussing the Big Picture. The voracious 24-hour news cycle needs plenty of fodder to attract eyeballs. It almost seems like the media must pick and choose what will create the most concern. “Seventeen dead in drone attacks? Let’s put that sixth on the schedule.”

Big Picture Issues

Wars in Ukraine, Israel, and Sudan. Attacks on shipping. Russian hacker ransomware. The battle between the U.S. executive and judicial branches. Tariffs, sanctions, inflation, interest rates, boycotts.

Will the price of raw materials go up? How much will transportation cost next week? Should I load up on inventory—or scale back? Can we raise prices proactively? Will my suppliers raise their prices proactively? Will my customers find alternatives to my products or services?

It almost makes a business owner pine for the days when “mundane” issues like employee retention and customer satisfaction were the primary concerns.

How much weight should a business place on Big Picture issues? If you are a tomato grower in Mexico who ships 100% of your crop to the U.S. and just got hit with a 17% tariff, maybe a lot. But if you are a consumer in the grocery store who just saw Roma tomatoes go from $0.23 each to $0.27 each, perhaps not so much.

If you are an Italian restaurant that consumes 400 pounds of those tomatoes a week, the increase in cost from $0.79 to $0.92 a pound is about $52. Perhaps not enough to change menu prices, but enough to be discussed at the restaurant association meeting.

But Does it Count?

Even when the Big Picture seems to matter, the actual impact may be far smaller than it first appears. If you are a greenhouse tomato grower in Arizona, you probably applaud the tariff. If your gross margin on each pound of tomatoes sold is $0.05, you just narrowed the gap by about one-tenth of a cent. Does that really tip the scales?

Has the Mexican grower truly lost the inherent advantages of lower water and labor costs? Or were those already eroded by the Arizona grower’s automation, climate controls, and proximity to market?

In the final analysis, the biggest impact of the tomato tariff may be the concern it creates—the distraction from focusing on other issues—and the fodder for another news cycle. Then the Mexican grower, the Arizona grower, the restaurateur, the supermarket buyer, and the consumer all go back to what they were doing. They simply have a slightly different set of numbers to work with.

The Advisor’s Role

As advisors to business owners, part of your job is to help them focus on what counts. Whether you are a business consultant, accountant, attorney, or financial planner, you have an obligation to help separate the wheat from the chaff. When it comes to running a successful business, tariffs, sanctions, inflation, and interest rates are often just chaff.

You can help your clients—and solidify your position as a trusted advisor—by guiding them to ask the necessary questions:

How much will this really affect your business?
Have you run the numbers?
Does it require a change in what you do, or how you do it?
If a change is called for, will taking immediate action have a substantially greater impact than simply including it in your next planning cycle?

Of course, sometimes the answer to those questions may be yes. More frequently, it will be no. Then you and your client are free to discuss the Big Picture—but without the false urgency that television, social media, and newspapers are trying to foist upon them.