Stepping away from a business is arguably as big a milestone as starting a business. It can bring excitement, uncertainty, and, for many, hesitation. Too often, business owners view exit planning as something to worry about later. But putting it off or making rushed decisions can significantly diminish the value of your business and jeopardise your financial security.

Even strong businesses can see their exit outcomes undermined by common, avoidable mistakes. From neglecting tax planning to relying on a single exit path, these missteps can erode value and limit your options when it matters most. This article examines the most critical mistakes owners make when planning their exit and offers clear, practical steps to help you navigate the transition successfully.

Understanding Common Fears Surrounding Exit Planning

Many business owners delay exit planning not because they lack awareness, but because of deeply rooted psychological and emotional barriers. The thought of relinquishing control, the uncertainty of life after business, and anxieties about legacy all contribute to procrastination. These feelings are normal, but they must be addressed head-on to make sound decisions about the future.

Behavioral economics and psychology provide valuable frameworks for understanding these hesitations. Optimism bias, for instance, leads owners to believe that future problems are less likely to affect them, delaying necessary preparations. Similarly, present bias prioritises immediate comforts over long-term planning, pushing exit considerations to the back burner. Overcoming these biases requires a conscious effort to confront potential challenges and objectively assess the business’s current state.

Recognising these psychological patterns is the first step. The next is turning that awareness into action. By taking small, proactive steps, such as assessing current business value, documenting key processes, or having early conversations about succession, owners can start building clarity and control over their future. Exit planning can be overwhelming or immediate, but beginning early creates options and reduces the fear of one day selling of your business.

Tax Planning Done Too Late

Failing to integrate tax planning early in the exit strategy is a common and costly mistake. The consequences can be far-reaching, impacting the net proceeds from the sale and hindering long-term financial goals. Without proactive tax management, business owners risk missing opportunities to minimise liabilities and maximise their after-tax income.

Here’s how late tax planning can hurt your exit strategy:

• You lock in a higher tax bill. If you don’t plan ahead, you may miss out on tax concessions available to business owners, especially the Capital Gains Tax (CGT) small business concessions, which often require specific structures or holding periods.
• You can’t restructure efficiently. Some exits require pre-sale restructuring (e.g. moving assets out of the business, forming a trust, or separating personal from business liabilities). These restructures usually need to be done well in advance to avoid penalties or to be eligible for rollover relief.
• Buyers see red flags. If your financials aren’t tax-efficient, it can signal poor governance or rushed planning. Sophisticated buyers will factor this into the price or walk away.
• You lose negotiating power. With unplanned tax outcomes, buyers can use your urgency against you, knowing you can’t afford to delay for the sake of restructuring or optimisation.
• Your retirement goals fall short. Many business owners have a “magic number” in mind for retirement. But without tax planning, the net amount after tax may be far less than expected.

Exit planning and tax planning are inextricably linked. Strategic tax advice needs to come early, not when the deal is nearly done to ensure the outcome aligns with your financial and personal goals. For instance, structuring the business as a trust years in advance can unlock significant CGT concessions upon sale. Overlooking this opportunity due to late planning could cost hundreds of thousands of dollars in unnecessary taxes.

The Risk of Relying on a Single Exit Strategy

Placing all your hopes on a single exit strategy is akin to putting all your eggs in one basket. Market conditions can shift, potential buyers can back out, and unforeseen circumstances can render your carefully laid plans obsolete. Flexibility and adaptability are crucial for navigating the complexities of the exit process.

The business environment is constantly evolving. Economic downturns, technological disruptions, and changes in consumer preferences can all impact the viability of a specific exit strategy. For example, if your sole plan is to sell to a competitor, a sudden industry consolidation could eliminate potential buyers and leave you with limited options.

Conducting a thorough risk assessment of your current exit strategy is essential. Start by asking how vulnerable your chosen path is to market volatilit. Could an economic downturn derail your plans? Next, consider industry trends. Are there shifts or disruptions that might affect your ability to exit as intended? Buyer interest is another key factor. Without strong and sustained interest from buyers or successors, even the best-laid plans may stall. Finally, reflect on your personal circumstances. Changes in health, family, or lifestyle can all impact your preferred exit timeline and approach. Taking these variables into account early gives you more control and flexibility when it matters most.

Diversification is key. Explore multiple exit strategies, such as selling to a private equity firm, pursuing a management buyout, or even considering an IPO. The more options you have, the better equipped you’ll be to adapt to unforeseen challenges and maximise your chances of a successful exit.

Establishing a Timely and Comprehensive Exit Strategy

A comprehensive exit strategy encompasses various elements that work in concert to ensure a smooth and profitable transition. Financial readiness, successor planning, and accurate business valuation are key components of this process. Starting early is paramount, allowing ample time to refine and implement the strategy effectively.

Consider this phased approach:

1. 3-5 Years Before Exit:
   • Define your financial goals and the lifestyle you desire after exiting.
   • Conduct a preliminary business valuation.
   • Identify potential exit strategies and assess their feasibility.
   • Begin grooming potential successors or preparing the business for sale.
2. 1-3 Years Before Exit:
   • Implement strategies to enhance business value (e.g., improving profitability, streamlining operations).
   • Refine financial projections and tax planning.
   • Engage with potential buyers or successors.
   • Document key processes and systems.
3. 6-12 Months Before Exit:
   • Finalise legal and financial documentation.
   • Negotiate terms with the chosen buyer or successor.
   • Develop a detailed transition plan.
   • Communicate the exit plan to stakeholders.

Business performance metrics serve as guides throughout this process. Regularly monitor key indicators such as revenue growth, profitability, customer retention, and employee satisfaction. Use these metrics to inform strategic decisions and adjust your plans as needed. If revenue growth slows, for instance, consider investing in marketing initiatives or exploring new product lines to increase the business’s attractiveness to potential buyers.

Engaging With an Exit Advisory Partner for Tailored Solutions

Navigating the complexities of exit planning can be daunting. There are legal, financial, and operational aspects to consider. This is where an experienced exit advisory partner becomes invaluable. They offer not just strategic insight, but support that helps you avoid simple but costly mistakes. Their role is to guide you through the process with clarity, with a clear and unbiased focus on protecting and maximising the value you’ve built.

One of the biggest advantages of working with an advisor is access to specialised knowledge. From up-to-date market trends to the intricacies of tax and legal structuring, they bring a level of technical expertise that ensures no detail is overlooked.

Advisors also open doors. Their networks often include potential buyers, investors, legal professionals, and other key stakeholders, all of whom can play a role in shaping the outcome of your exit. These connections can help accelerate the process of finding buyers and improve the quality of your options.

Negotiations are where advisory support proves its worth the most. With experience in performing the exact task for other companies, they can help position your business in the strongest possible light and secure terms that you deserve.

Oasis Partners will collaborate closely with you to develop the right comprehensive exit plan that aligns with your goals, mitigates risks, and maximises your financial outcome.