Pre-IPO Planning: Getting Ahead of Your Company’s IPO

When you’ve worked at a public company, you understand the rhythm of quarterly earnings and employee benefits structure. But preparing for your own company’s IPO is something new.

Pre-IPO planning isn’t just about cashing in. It’s about translating years of effort into long-term wealth and aligning it with what matters most. (The scenarios presented are hypothetical and do not represent actual client experiences. Individual results may vary.)

Here’s what to consider when preparing financially and strategically for your company’s IPO.

Understand what you own — and what it’s worth

Before your company goes public, take a detailed inventory of your equity compensation. This may include restricted stock units (RSUs), which typically vest over time and are taxed as ordinary income upon vesting. You may also have incentive stock options (ISOs), which offer favorable long-term capital gains treatment if held correctly, but can trigger the Alternative Minimum Tax (AMT). Meanwhile, non-qualified stock options (NSOs) are taxed upon exercise and require careful planning to manage their impact.

At this stage, one of the most important questions you’ll face is: Should I exercise my options before the IPO, or wait? With ISOs, you’ll want to model scenarios that account for AMT exposure, using strategies such as early exercise, exercising immediately after the IPO, exercising partially over time, or waiting until you meet long-term holding requirements.

Understanding your vesting schedules, strike prices, expiration timelines, and current 409A valuations is critical. These factors determine how and when you can access liquidity, as well as the amount you may owe in taxes.

Let’s consider a hypothetical situation. You have 50,000 fully-vested ISOs. You’re weighing exercising pre-IPO to start the long-term capital gains clock. A CPA runs the numbers: exercising now triggers $300K in AMT exposure. Is it worth it? Should you spread it over two tax years? These are real trade-offs.

Plan for the tax event before it happens

An IPO is a taxable event, even if you don’t sell. That’s the sneaky part. RSUs trigger income tax at vesting, ISOs can create AMT exposure if exercised before the offering, and selling shares after the IPO leads to capital gains taxes — either short-term or long-term, depending on how long you hold them.

One question we often hear is: Will the IPO itself trigger any tax liabilities? The answer: yes, in many cases. Even without selling a single share, the vesting of RSUs or the exercise of options can generate significant taxable income. It’s critical to model this with your advisor well in advance as your personal tax impact may vary based on timing, equity type, and individual circumstances.

Another layer of complexity: Can I qualify for QSBS (Qualified Small Business Stock) treatment? If you’ve held eligible stock for more than five years (before the effective date of the One Big Beautiful Bill Act (OBBBA)) or three years (if acquired after the effective date of the OBBBA) and your company qualifies under Section 1202 of the tax code, you may be able to exclude up to $10 million (or 10x basis) in capital gains (if acquired before effective date of OBBBA) and $15million (if acquired after effective date of OBBBA). However, entity structures like FLPs or pre-IPO gifting can impact eligibility, so your advisor team should discuss these implications early.

Stay ahead of the curve with a tax model that accommodates various sales timelines. A good advisor can simulate multiple “what if” paths, weighing tax exposure against your diversification goals.

Let’s consider a hypothetical situation. You model two timelines: one where you sell all at the IPO and face a high tax bill, and another where you hold for 12 months or more to benefit from long-term capital gains rates. You also talk with your advisor early in the year, before RSUs vest, to explore ways to offset taxable income through charitable giving and retirement contributions. Planning gives you flexibility and reduces surprises.

Strategize around lockups and liquidity windows

Your shares might be worth millions on paper, but that doesn’t mean you can sell them immediately. Most IPOs include a six-month lockup period that restricts insiders from selling shares.

This is why it’s important to create a liquidity plan well in advance. One common question: Should I establish a trust, LLC, or other entity before the IPO? If your goals include asset protection, estate planning, or managing family ownership structures, it may be beneficial to establish a single entity to consolidate or manage your holdings.

And what about charitable giving? If you’re considering setting up a donor-advised fund (DAF) or foundation, the pre-IPO phase can be a powerful time to act; however, timing is crucial. To avoid IRS scrutiny over “pre-arranged sales,” your gifts must be made before any legally binding sale agreement is in place. Work with legal and tax advisors to structure gifts properly and maximize deductions.

Once the lockup period ends, you’ll want a clear plan in place. A Rule 10b5-1 plan allows you to pre-schedule sales while remaining compliant with insider trading laws. It also helps you avoid making emotional, market-timing decisions.

Let’s consider a hypothetical situation. You establish your 10b5-1 plan months in advance. As the lockup period ends, your shares are sold incrementally over three months, helping you reduce the impact of market fluctuations over time and simplifying your tax situation. In another version of this scenario, you resist the urge to wait for another stock run-up post-lockup and stick to the plan, knowing that disciplined execution is key.

Diversify before the window opens

A concentrated stock position may amplify both upside and downside. A thoughtful diversification strategy is essential if most of your wealth is tied to your employer’s equity.

This might include reallocating investments to broad market funds to reduce exposure to the performance of a single company. You may also consider private investments to diversify your portfolio with assets that are not correlated with public markets. In some cases, philanthropy and legacy planning — such as donor-advised funds or family trusts — can be part of the diversification toolkit, providing both impact and tax advantages.

Let’s consider a hypothetical situation. After your lockup period ends, you sell 40% of your holdings. A portion is invested in a diversified index fund to stabilize your core portfolio. Another portion funds a family trust to support long-term goals. The rest seeds a donor-advised fund that lets you give strategically over time. The result is a portfolio that reflects your values — and isn’t dependent on the success of one stock.

Align the event with your vision

An IPO is not just a financial milestone—it’s a chance to reimagine how your time and resources support your life vision.

Perhaps this is your opportunity to step away from full-time work, launch a personal project, or finally invest in your dream home. It could be the start of a family foundation, a new chapter of giving back, or simply the opportunity to gain more control over your day-to-day choices. The key is to approach this liquidity event not just with spreadsheets but with clarity around what you want your money to make possible.

Let’s consider a hypothetical situation. You and your partner have been dreaming of semi-retirement and spending more time abroad. After working through post-IPO proceeds with your advisor, you realize you can take a one-year sabbatical, contribute to your kids’ 529 plans, and kickstart that donor-advised fund you’ve meant to open. The IPO becomes a pivot point—not just a paycheck.

Assemble your dream team

Think of yourself as the conductor, guiding a talented ensemble of specialists to create harmony in your financial life.

That includes:

• A CPA to model taxes and AMT exposure
• A financial advisor to plan the sale timing, risk, and reinvestment
• An estate planner to help pass wealth efficiently
• An attorney to review employment agreements, especially around clawbacks or change-of-control provisions

But don’t just think in silos. Preparing for an IPO calls for a coordinated team — one that acts as your Personal CFO. That means in-house experts who can connect the dots between your tax plan, equity compensation, charitable goals, estate structure, and investment strategy. It’s the difference between fragmented advice and fully integrated financial life design. When your advisors collaborate under one roof, it can help create more clarity, coordination, and confidence.

An IPO is more than a liquidity event — it’s a legacy event. Proper preparation may turn a one-time financial milestone into a foundation for long-term freedom, impact, and purpose. And that’s the heart of wealth alignment: committing your time and money to your values and passions so you live a more purposeful life.

This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.