Navigating the Future: Creating a Thoughtful Exit Strategy for your Family Businesses

Running a family business is a journey filled with unique challenges and rewards. Many family business owners pour their hearts, souls, and resources into building and nurturing their businesses. While the focus is often on ensuring the company’s success and longevity, it’s equally essential to plan for the future, including the possibility of exiting the business. The lack of a well-defined exit strategy can have dire consequences. Still, early planning can ensure a smooth transition and long-term prosperity for the business and the family it supports.

Exit Strategy Deficiency: A Stark Reality

A recent survey, “Exit Smart Report” canvassed 300 small-to-medium business owners and C-suite executives, revealing a stark reality:

Only one-third of the respondents had a comprehensive exit strategy.

This statistic raises a red flag, signaling a concerning gap in preparedness among business owners. A lack of a well-thought-out exit strategy can jeopardise the legacy and wealth family businesses aim to preserve.

The Dilemma of Short-Termism

The report identified a prevalent trend of “short-termism” among business owners. Approximately 43 percent of owners expressed their intention to exit their businesses within the next five years. This short-term focus might be attributed to various factors, but looming retirement was the primary trigger for 42 percent of business owners. This sense of urgency raises the importance of proper planning to ensure a successful exit.

Inadequate Valuation and Awareness

The report also revealed some alarming shortcomings in business owners’ awareness and preparedness.

• Two-thirds of business owners had not had their businesses independently valued in the last three years.
• 20% of business owners who wanted to sell did not know their likely buyer.
• 59% admitted they had not considered the tax implications of a future sale.

7 Key Steps to Creating an Effective Exit Strategy

Early and comprehensive planning is vital to securing the future and maximising the value of your business when exiting. Family businesses are not just about the present; they are about legacy, and that legacy deserves a well-considered exit strategy to ensure its preservation and prosperity. To develop a successful exit strategy, we recommend considering the following steps:

1. Define Your Objectives: Clearly outline your personal and business objectives, including financial goals, timeline, and legacy considerations.
2. Valuation: Determine the true value of your business through a professional business valuation. This is crucial for setting realistic financial goals.
3. Legal and Tax Considerations: Ensure you understand the legal and tax implications of your chosen exit or succession strategy. Failure to consider the tax implications of a future sale may lead to a substantial portion of the sale proceeds going to tax.
4. Communicate with Stakeholders: Keep key employees, partners, and family members informed about your exit strategy to facilitate a smooth transition.
5. Regularly Review and Adjust: Continuously monitor and adapt your exit strategy to account for changes in the business or your personal or family circumstances.
6. Start Early: We highly recommend that business owners begin exit planning at least three to five years before they expect to exit. The process typically takes six to 12 months and includes planning, preparing an information document, and identifying potential buyers.
7. Seek Professional Guidance: Consult with trusted advisors, attorneys, and business experts who can provide valuable insights and assist with the planning process. They can help provide expert guidance to mitigate these risks, paving the way for a more advantageous outcome.

How can Morrows Help

Morrows have a strong history and experience working and supporting Australian family businesses. Our advisors take pride in guiding business owners through the succession planning process, offering expert insight and support to navigate the complexities of planning for the future.