Business Exit Planning Strategies in Australia
The strategic importance of exit planning
Exit planning is the strategic process of preparing a business for sale or transition by optimising all aspects to maximise its value. This level of preparation distinguishes extraordinary businesses from the rest.
If you haven’t yet considered exit planning, it’s worth understanding how well-prepared businesses streamline their operations to ensure a smooth and valuable transition.
Why is exit planning important for Australian businesses right now?
In Australia, changing market conditions, tax laws, and industry trends have made exit planning more critical, particularly as the sell-side becomes less favourable in certain sectors. Post-pandemic, Australian industries face varied and substantial challenges.
In 2024 the average small business exit can take anywhere from 6 months to 5 years, depending on size, complexity, industry, and strategy and type of exit strategy (e.g., selling to a buyer, merger, acquisition, or family succession). Once listed, most sales take 6–12 months, but complex valuations and legal considerations can extend this timeline.
A longer exit timeline allows business owners to increase company value, restructure where necessary, and optimise for tax effectiveness—ensuring they are fully prepared for the transition.
As M&A advisors, we’ve seen first-hand how early exit planning leads to better financial and emotional outcomes. Those who plan ahead can navigate capital gains tax (CGT), optimise business valuation, and ensure they’re in the best position to achieve their goals when the time comes to move on.
Types of exit strategies for business owners
Business owners have several exit strategies, each with its own advantages and challenges. Common options include:
Selling to a third party
Selling the business to an external buyer, such as a competitor or private equity firm, often yields the highest return but requires thorough preparation, as selling to a third party involves navigating complex tax laws, particularly capital gains tax (CGT). Business owners can potentially benefit from CGT concessions and exemptions, such as the Small Business CGT Concessions, but structuring the deal correctly is crucial (and why early exit planning is essential).
Management buyouts (MBOs)
In an MBO, the existing management team buys the business, offering a smooth transition but often needing external financing.
These deals often involve leveraged buyouts (LBOs) and must comply with fiduciary and shareholder requirements under the Corporations Act.
Employee Stock Ownership Plans (ESOPs)
An ESOP enables employees to gradually acquire shares, fostering a sense of ownership. However, it requires careful planning and compliance with Employee Share Schemes (ESS) legislation, which provides tax incentives but imposes strict rules under ASIC regulations.
Family succession
Passing the business to a family member preserves the legacy but requires strong succession planning and managing family dynamics.
In Australia, estate planning and CGT on asset transfers can complicate this process, so trusts and other structures are often used to ensure a smooth transition and minimise tax liabilities.
Initial Public Offering (IPO)
Taking a business public through an IPO can raise significant capital and enhance its market profile. However, it involves strict regulatory requirements, including compliance with ASX listing rules and the Corporations Act 2001. The process requires financial audits, ongoing reporting, and corporate governance adjustments, making it a demanding transition.
Additionally, post-IPO management and complex reporting requirements fundamentally change the nature of the business, which may not suit all owners.
Key components of a successful exit plan
A successful exit plan ensures a smooth transition while maximising value. Key steps include:
1. Business valuation
The first step is determining your business’s value, considering revenue, profitability, and market conditions. M&A advisors provide accurate valuations and guide you on deal structuring options, such as share or asset sales, to maximise financial outcomes and minimise tax implications.
2. Improving business attractiveness
Streamlining operations enhances a business's attractiveness by demonstrating efficiency and independence from the owner. It demonstrates that the business can sustain its performance after the owner steps away.
By ensuring the day-to-day setup is robust, scalable, and independent of the owner, sellers create a more attractive and valuable proposition for potential buyers. This approach not only boosts valuation but also shortens the time on the market and leads to a smoother handover.
3. Market timing and readiness
Selling at the right time can be important. M&A advisors assess market trends, economic factors, and buyer demand to maximise valuation and secure favourable terms. Being prepared ahead of time is essential.
4. Financial planning and tax optimisation
A key part of exit planning is minimising tax liabilities, particularly around capital gains tax (CGT). M&A and financial advisors structure deals to reduce taxes and explore options like earnouts or seller financing for long-term financial benefits. This takes time and early discussions with a specialised tax advisor is required.
5. Succession planning
If transitioning the business to family or internal management, a clear succession plan ensures smooth leadership continuity. M&A advisors help prepare new leadership and address cultural alignment to ensure the business remains strong post-transition.
6. Risk mitigation strategies
Buyers will scrutinise risks like operational weaknesses or legal issues. M&A advisors assist with due diligence preparation, helping organise key documents and mitigate potential buyer concerns to secure a smooth, lower-risk transaction.
“As part of our M&A advisory services, we assist with strategic planning and other critical aspects to maximise growth, ensuring nothing is left on the table, and ensuring a smooth transition.”
Common challenges in exit planning and how to overcome them
When business owners attempt to sell their business or orchestrate an exit, they often encounter a number of difficulties. Here are some of the most frequent mistakes committed:
Overvaluation of the business
Emotional attachment can lead to overvaluing the business. Buyers prioritise cash flow, profitability, and market position, making a professional valuation essential early in the process.
Underestimating the time required
Many business owners underestimate the time needed to prepare for a sale. Exit planning, ideally started 3–5 years in advance for operational improvements and maximising profitability.
Emotional attachment to the business
Emotional attachment can cloud judgement, leading to unrealistic expectations. Recognising this early and seeking professional guidance ensures balanced, practical decision-making.
Poor financial records
Accurate, organised financial records are essential for valuation and a smooth sale. Poor records can delay deals, lower valuation or even scare off buyers.
Inadequate planning for post-exit life
Many business owners don’t plan for what comes after the sale, which can lead to feelings of uncertainty or regret once the deal is complete. Having a clear vision for your post-exit life—whether it’s retirement, starting a new venture, or pursuing other passions—is just as important as planning the sale itself.
Potential risks of a poorly executed business exit
A poorly managed exit can have long-term financial, legal, operational, and personal ramifications, highlighting the requirement of careful planning, due diligence, and the involvement of professional advisors (e.g., M&A advisors, accountants, legal experts, etc).
Here’s the 6 main risks associated with a poor exit strategy:
Financial losses: Selling for less than the business is worth or being stuck with liabilities.
Reputation damage: Poor communication can harm relationships with customers and employees.
Legal issues: Incomplete documentation or contract breaches can lead to legal disputes.
Operational disruptions: New management may struggle, causing operational instability.
Personal regret: Owners may face emotional stress and loss of future income.
Tax and regulatory problems: Poor planning can result in higher taxes or compliance penalties.
When should you start exit planning?
Ideally, exit planning should begin several years before the actual sale or transition of a business. Starting early, often 3 to 5 years in advance gives business owners the time needed to make improvements that can significantly boost the company’s value and attractiveness to buyers. However, it’s important to note that it’s never too late to start planning. Even small adjustments made in the lead-up to a sale can have a meaningful impact on the final outcome.
Special Considerations for Australian Businesses
In Australia, exit planning should also factor in market timing, regulatory changes, and industry cycles. For example, tax considerations like capital gains tax (CGT) can affect the financial outcome of a sale, and planning around specific CGT concessions can save business owners a substantial amount. Additionally, industries such as mining, agriculture, and technology often follow specific market cycles, so understanding these trends and aligning your exit accordingly can maximise value.
The role of M&A advisors in exit planning
M&A advisors play an essential role in helping business owners navigate the complexities of exit planning, ensuring optimal results. From providing accurate business valuations to preparing the company for sale, they guide you through each step to maximise value.
Business exit strategy services
Morgan Shaw Advisory offers exit strategy planning aimed at maximising business value well before an exit. With their “Game Ready” program which supports businesses on their exit journey, their team supports clients by optimising operations, streamlining finances, and identifying the right buyers through extensive research and networks. Services include Strategic Advisory, Transaction (M&A), and Coaching & Mentoring, as well as the comprehensive EBITDA+ Six Steps to Success™ program. They also manage negotiations, securing favorable terms and maintaining compliance with legal and financial requirements, allowing business owners to focus on running their company while Morgan Shaw Advisory navigates the complexities of the transaction.
Strategic Advisory: Comprehensive planning for 1, 3, and 10-year strategies, leadership development, marketing and sales optimisation, financial reviews, and preparation for a future exit.
Transaction (M&A): Full support for business exits, capital raises, or acquisitions. We handle everything from valuations to due diligence, so you can focus on running your business while we manage the transaction process.
Coaching & Mentoring: One-on-one or group coaching, with options for internal programs or Vistage peer advisory groups, helping leaders tackle challenges and unlock new opportunities.
EBITDA+ Six Steps to Success: A complete, all-inclusive package combining all services to get your business "Game Ready" for any opportunity, maximising value and ensuring a successful exit or growth.
Exit Planning Frequently Asked Questions (FAQ)
How long does the exit planning process typically take?
Exit planning ideally starts 3 to 5 years before a sale, but even with less time, M&A advisors can help streamline the process and focus on key areas to maximise value quickly.
What is involved in valuing my business for exit planning?
Business valuation involves assessing financials, assets, market conditions, and future growth potential. M&A advisors provide accurate valuations by analysing industry trends and benchmarking to ensure you get the best price.
What steps can I take to increase the value of my business before selling?
Improving profitability, streamlining operations, growing sales and building a strong management team can increase business value. M&A advisors identify areas for improvement and help implement strategies that boost your market appeal.
How do I find the right buyer for my business?
M&A advisors leverage their networks and conduct thorough research to identify suitable buyers, ensuring alignment with your goals and the business's long-term success.
How do I ensure a smooth transition after the sale?
A detailed transition plan, including leadership handovers and operational continuity, is key. M&A advisors manage the transition process, ensuring all parties are prepared for a seamless post-sale transfer.
How Morgan Shaw Advisory Can Help
If you're considering an exit in the near future, MSA will tailor an exit strategy that aligns with your personal and business goals. Let Morgan Shaw Advisory help you navigate the process and maximise the value of your business and chance of successfully completing the sale