Exiting a business is just as important as starting one. Whether you’re retiring, pursuing a new venture, or simply stepping away, a well-structured exit strategy ensures a smooth transition while maximising financial return.
Proper (and early) planning is important to ensure you address any outstanding issues and maintain business value. Without a structured plan, you risk selling for less than the business is worth, losing operational stability, or failing to ensure business continuity after you step away.
But a strong exit strategy takes time to build. So the earlier you start planning, the better!
Here’s how to set yourself up for a successful exit that protects both your financial future and the business you have worked hard to build over the years.
Why an Exit Strategy is More Than Just a Backup Plan
Exiting a business is not something that happens overnight. Ideally, we recommend business owners start planning at least five to ten years in advance for the best possible outcome for everyone involved.
Having an early plan in place allows you to:
- Maximise your business’s valuation at the point of sale
- Reduce tax liabilities and secure better financial outcomes
- Strengthen leadership to ensure continuity after you leave
- Step away on your own terms without business disruptions
A rushed exit often leads to lost value, increased stress, and unexpected financial complications.
The goal is to exit at a time when your business is thriving, not declining. So, start planning early!
Choosing the Right Exit Strategy
Every business owner’s path is different. The right exit strategy depends on several factors, including financial goals, the business structure, and market conditions. Here are some of the most common ways a business owner can exit a business.
Transferring the Business to a Family Member
Transferring the business to a family member can be a heartfelt method to preserve the legacy you have built. Nonetheless, emotional factors and possible tax consequences must be considered.
Advantages: Emotional fulfilment from maintaining the business within the family; potential tax advantages through gifting strategies.
Disadvantages: Family relationships might complicate the transition; the chosen successor might lack the necessary qualifications; risk of resentment among other relatives.
Selling to an Internal Employee
Selling your business to a reliable employee who is familiar with the company’s operations can be a suitable option. Although it is less complicated than other alternatives it is highly recommended to establish a formal agreement.
Advantages: Maintains leadership continuity and expertise, which can boost employee morale.
Disadvantages: The employee might lack the financial means to purchase the business outright or experience disruption if the employee departs after the acquisition.
Engaging Private Equity (PE) Firms
Private equity firms invest in businesses with growth potential. They can offer a high sale price but often require the owner to stay involved during the transition.
Advantages: Potential for a substantial financial return. PE firms also contribute the expertise needed for further business growth.
Disadvantages: Potential loss of business control. PE firms often emphasise short-term profits over long-term goals.
Selling to an External Buyer
Selling to an external buyer can generate the highest sale price, but finding the right buyer takes time. Working with business brokers can help secure a deal that maximises value.
Advantages: Likely to achieve a high sale price. Selling to external buyers also offers the possibility of a full exit from the business or a shorter involvement period compared to private equity firms.
Disadvantages: Buyers might not share the same values or vision for the business. Also, locating a suitable buyer can be lengthy. Business brokers also receive a portion of the transaction.
Regardless of the approach, a professional valuation plays an essential role in ensuring an accurate assessment of the business’s worth.
Asset-based, income-based, and market-based valuation methods provide different perspectives on pricing, and engaging an appraiser helps justify asking prices during negotiations.
If you’re not sure about which option may be right for you, talk to our advisors at Growth iQ, and we can point you in the right direction and identify all the key issues you need to consider in your sale.
Tax Considerations When Exiting a Business
Taxes can take a significant portion of your sale proceeds if not planned properly. By structuring your exit in a tax-efficient way, you can reduce liabilities and keep more of what you have built.
Understanding Your Tax Position
Your business structure, ownership, and assets all impact the tax outcome of your exit. Many small business owners can benefit from capital gains tax (CGT) concessions, potentially reducing or eliminating tax liabilities on the sale.
For example, the small business CGT concession can allow some businesses to sell for millions without paying tax. Older businesses may also qualify for pre-CGT exemptions, but eligibility depends on ownership history and business structure.
Talk to your accountant or the specialists at Growth iQ to discuss your options around your tax position and the small business CGT concession.
Planning the Sale Structure
Once you understand your tax position, you can plan for an asset sale or share sale. Each has different tax consequences. If restructuring is needed, it’s crucial to undertake this well before an exit to avoid triggering tax anti-avoidance rules.
Conduct Tax Due Diligence
Business buyers prefer asset deals to avoid past liabilities, but sellers often benefit from share sales due to CGT discounts. Conducting vendor due diligence before engaging buyers can identify tax risks and improve the deal structure.
Restructure in Advance
Tax-effective exit planning requires early restructuring of assets, trust structures, or ownership entities. Last-minute changes can trigger tax penalties or void tax benefits.
Consider the Buyer’s Perspective
A buyer will analyse tax liabilities, related-party loans, and all legal documentation. Being proactive in addressing these concerns can ease negotiations and instil confidence in potential buyers. This can also make the deal go through quicker.
Maximising Business Value Before You Exit
A business that runs smoothly without being overly dependent on the owner is far more valuable to potential buyers. Strong financial performance, operational efficiency, and leadership development all contribute to a higher valuation and buyer appeal. So, when looking to maximise business value, owners must:
- Evaluate Financial Performance: Assess revenue streams, profit margins, and operational efficiency to identify areas for improvement to appeal to more buyers.
- Strengthen Customer Relationships: Loyal customers add value to a business, making it more attractive to buyers. If you identify any issues in customer satisfaction, work with your employees to strengthen those relationships, add more value to clients, and even consider firing clients/customers who are not an ideal client fit.
- Diversify Offerings: Expanding products or services can increase revenue potential and business valuation as it creates more opportunities to upsell and appeal to new and expanding markets.
- Improve Operational Efficiency: Streamlining processes reduces costs and increases profitability. So, if you haven’t already, document processes and automate as much as possible!
- Train Employees for Leadership: Investing in your team ensures they can sustain operations after your departure. Also, if the team are trained leaders, it’s much easier for you, the owner, to step away and the business can keep running like a well-oiled machine.
Ensuring Business Continuity Post-Exit
Many sale agreements include a transition period where the original owner remains involved temporarily to facilitate knowledge transfer and maintain client relationships. This ensures the business remains operational without any disruptions to processes, fulfilment, and overall customer satisfaction.
Creating an operational manual that outlines standard procedures is a great way to ensure a seamless transition for the new leadership.
For internal succession (i.e. selling to an internal team member), mentoring the next leader ahead of time allows them to take on more responsibility gradually. This approach maintains business stability while allowing for a smooth transition.
Take Control of Your Business Exit – Plan Early!
Leaving your business shouldn’t tarnish your legacy.
A well-prepared exit plan and sale strategy attracts better offers, ensures a smoother transition for everyone involved, and preserves the owner’s financial security and overall legacy. By planning ahead and planning early, you can leave their businesses on your terms, free from stress and uncertainty.
The best time to start planning your exit was yesterday. The second best time to start planning is today. Whether you envision selling, merging, or passing your business on to a family member or internal team member, taking proactive steps today will ensure your hard work continues to flourish long after you’ve stepped away.
If you’re unsure where to begin, consult with Growth iQ and we will ensure your exit plan secures both your financial future and the continued success of the business you’ve built.