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Exit Smart Report 2022

Tool Exit Smart Report 2022
exit smart general checklist Are you Exit Ready? General checklist

We work with business owners to ensure they achieve optimal value on the sale of their business.
This checklist outlines some of the fundamental issues to consider when planning your exit strategy.
If you answer no or maybe to any of these questions, we recommend that you seek advice from your local William Buck advisor.

Exit Ready checklist >
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A successful exit requires considerable planning!

William Buck’s Exit Survey is an independent report surveying Australian small-to-medium business owners and C-suite executives, to measure their business’s level of exit readiness.

Few business owners undertake sufficient planning ahead of an exit. This is a big problem, as considering all the issues upfront could mean the difference between a successful exit at maximum profit and a difficult exit where value may be lost.

Our analysis is categorised into the topics below. Please scroll down to read the report in its entirety or click on the topic that you are interested in.

1. At a glance >

2. Your key exit concerns >

3. Your wealth and retirement concerns >

4. What are your plans to add value? >

5. Tax minimisation >

6. When do you plan to exit? >

7. How do you plan to exit? >

8. Post-sale commitment >

9. What can I do next? >

Key findings

01. 

Older business owners are preparing themselves for a new stage in life

Of the owners surveyed, 73% expect to exit their business within the next 10 years and 48% within the next 5 years. 85% of respondents were over 50, with many expecting to retire when they exit their business.

02.

Concerns about
exiting

Over 50% of respondents were either ‘concerned’ or ‘highly concerned’ that they may not receive the desired sale price for their business, with a similar number being concerned that they would not be able to find a buyer.

03.

Most business owners are underprepared for their transition

Only 45% of participants have an exit strategy in place and most are not executing strategies to increase the value of their business. Many were also not aware of all of their possible exit options or the potential for having to remain in the business for some time post sale.

04.

Businesses are too dependent on their owners 

The survey results indicate that most of the owners are concerned that their businesses are too reliant on them. 58% of the owners surveyed were still working more than 40 hours per week in their business.

05.

Business owners are too dependent on their business

Up to 40% of the business owners surveyed will need to sell their business to fund their retirement plans.

06.

Not getting the right advice early enough 

Only 21% of respondents had sought tax advice on how to best structure their business for sale. Only 28% of participants had their businesses independently valued in the last three years and only 33% had sought advice on how to maximise the value of their business.

Most business owners have some understanding of the importance of annual business planning. Unfortunately, too few realise the importance of proper exit planning in ensuring that they maximise the price they receive when they finally decide to sell.

(LIZ SMITH, DIRECTOR)

1. At a glance

This year, of the over 200 participants we surveyed, 52% of respondents were aged 60 or more and 85% were over 50, indicating the majority of participants were relatively close to the retirement phase of their life. Furthermore, 90% of the respondents had ownership interests in their businesses, with most owning more than 50%. A high proportion 86% of the respondent’s worked for businesses that had less than 50 employees.

Generations of respondents

This year, our survey revealed that 44% of respondents were aged over 60, almost a third were aged between 50-59, 20% were aged between 40-49 and only 8% were younger – all between 30 and 39.

About the respondents 

Most for profit sectors were represented in the survey, with the highest representation being from professional services, at 20%, followed by health at over 12%, and retail and wholesale and agribusiness – both of which were represented by 11% of the respondents.

What is the approximate age of the owner/s?
Note: Figures are presented in percentages

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2. Your key exit concerns

Key exit concerns among business owners remained similar to those we saw in our last survey in 2019 and were: receiving the desired sale price for the business; the business’ reliance on its current owners; being able to find a buyer; and continued security of employment of staff.

Realising value

Respondents were asked on a scale of one to five how concerned they would be about a number of factors if they were to sell their business, with one being ‘Unconcerned’ and five being ‘Highly concerned’.

Over 50% of respondents were either ‘Concerned’ or ‘Highly concerned’ that they may not receive the desired sale price for their business, with a similar number being concerned that they would not be able to find a buyer. Most respondents are unlikely to know if their concerns are warranted, as 68% of respondents had not had their business valued in the last three years.

Interestingly, given the high number of people expected to sell to a competitor, there appeared to be relatively limited concerns in relation to keeping business information confidential during a sale process.

Are you concerned about receiving your desired sale price for your business? 

Working hours

Another major concern was that the business was too reliant on the current owners.

We share this concern, given that over 58% of the owners surveyed are still working more than 40 hours per week in their business.

While it’s understandable that owners are working hard to make their business successful, these hours are likely to detract from business values. Buyers will not want to pay full value for a business if they are concerned that the business is still dependent on the incumbent owners.

Business owners should start working on strategies to reduce the business’s reliance on them. A good way to demonstrate that the business is not too reliant on you is when you are able to take periods of extended leave without this having an adverse impact on results.

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3. Your wealth and retirement concerns

With life expectancy increasing, the need for a hefty sum in retirement to continue a preferred lifestyle is critical. Interestingly, 57% of our respondents expect retirement to be the reason they, and/or other owners of the business, will exit. This is nearly triple those that said they planned to retire upon exit in our 2019 survey, which was 20%. 

Do you have an adequately funded retirement plan outside your business?

Usually, small business owners have significantly less superannuation than others. This is because they are often not paying themselves superannuation or making voluntary contributions. Small business owners also tend to invest any profits that the business makes back into the business. The combination of these factors leads to many business owners being reliant on having to sell their business to fund their retirement.

It was promising that the majority (60%) of our respondents believe that they have an adequately funded retirement plan outside their business.  This is an improvement on our 2019 survey results which saw almost half of all respondents indicate that they did not have an adequately funded retirement plan.

However, it still leaves a concerning number who are still likely to be reliant on their business to fund their retirement, particularly given the average age of the respondents and the fact that most plan to retire upon exit.

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4. What are your plans to add value?

Maximising the value of a business requires a solid and well-executed strategy. We strongly recommend that business owners seek advice on what they can be doing to maximise the value of their business. In our experience, it is never too early to undertake exit planning, with some of the most successful business owners having planned their exit when first establishing their business. 

Increasing business value

With a growing number of business owners planning to exit in the coming years, improving the value of the business should be a high priority. However, only 34% of participants had sought advice on how they could maximise the value of their business. As the graph shows, there are a number of actions that can be undertaken to increase business value, however these are being underutilised by businesses.

Which actions are undertaken to grow and increase business value?
Note: Figures are presented in percentages

Similar to the 2019 report, the key common actions being undertaken by business owners were improving systems, adding products and reducing costs.

While more businesses are focused on digital growth strategies than in 2019, the majority are still not. It is currently estimated that 50% of businesses are currently affected by digital disruption, thus the value of many businesses may be eroded if they do not appropriately respond to changes in market dynamics.

Three of the key drivers of higher business valuations are 1) the level of operating cashflow, 2) strong growth rates, and 3) lower risks. Therefore we recommend that business owners consider a range of growth strategies, focus on strong working capital management and seek to minimise any potential risk factors.

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5. Tax minimisation

Given that the after-tax consideration received is more pertinent to the business owner than the pre-tax consideration figure, we strongly recommend that business owners seek advice on how best to structure their business as part of their exit planning. 

Have you ever sought advice on how to restructure your business to maximise the after sale-tax value?

Only 21% of respondents indicated that they had sought advice on how to restructure their affairs to maximise the after-tax value of the consideration from the sale of their business. Thus, many business owners may end up with significantly less after-tax returns from their business purely because they are not aware of some of the tax savings that may potentially be available to them.

These potential tax savings need to be planned – another reason why we strongly recommend that you receive professional advice years before you actually plan to exit.

Have you ever sought advice on how to restructure your business?
Note: Figures are presented in percentages

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6. When do you plan to exit?

Unlike the results of our 2019 survey which demonstrated that the majority of respondents were expecting to retire when they exited the business, only 30% of respondents answered this way in our recent survey. However, this was still the most common trigger for an exit. This makes it even more important that they properly plan for their exit, so as to help ensure their financial security at retirement. 

Does your business currently have an exit strategy in place?
Note: Figures are presented in percentages

Exit readiness

  • 48% expect the current owners to exit the business in the next five years
  • 55% do not have an exit plan
  • 47% have either not sought advice or not thought about exit planning

Despite 73% of respondents expecting to exit their businesses in the next 10 years and 48% in the next five years, only 45% of respondents had an exit plan in place. This suggests that many businesses are not positioned to exit successfully.

The business owners who said they didn’t have an exit strategy in place were asked why this was the case. The top four reasons were:

  • 34% – The business has not sought advice about an exit strategy
  • 32% – Not intending on exiting the business in the short to medium term
  • 20% – Business will remain in the family
  • 13% – Never really thought about it

What is the expected timing of the exit strategy?
Note: Figures are presented in percentages

What do you believe will be the trigger for an exit event?

Other 3%
Family succession plan 10%
Wanting to pursue other interests 12%
Good market conditions for achieving a high value 13%
Seeking to realise value from their investment 15%
Receiving an unsolicited offer 17%
Planning to retire 30%

Some of the businesses that we have seen sell for the highest values started planning for their exits from inception.

Conversely, we have seen many instances of owners either struggling to sell their business, or having to sell them at substantially reduced values because they have not identified and rectified potential issues early enough. Unfortunately, these issues are often not uncovered until the due diligence stage when buyers do a thorough review of not only the financials, but also the employee, operational and legal arrangements.

To achieve maximum value, we recommend that business owners start planning for their exits at least three to five years before they actually expect to exit. Even if you are among the 10% of respondents who expect the business to remain in the family, good succession planning can help ensure any ownership transitions go smoothly and enable potential issues to be identified and mitigated before disputes arise.

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7. How do you plan to exit?

In our experience, many vendors tend to have a narrow view when considering potential buyers. An experienced advisor can help you determine an appropriate exit strategy and identify the buyers who are likely to gain strategic value from the acquisition and thereby potentially be prepared to pay the highest price.

Expected exit method

The results of William Buck’s Exit Smart survey indicate there is an increasingly limited or unknown view on exit options. At 45%, just under half of the respondents say their most likely exit outcomes would be through a trade sale, and 32% believe their business would be bought by a competitor. Only 15% of business owners are unsure of what suitor would acquire their business. This narrow view of options is concerning, considering that identifying the buyers who are likely to gain the most benefit from an asset is key to maximising value.

Which exit strategies have been considered?
Note: Figures are presented in percentages

Who do you consider to be the most likely buyer of your business if sold?
Note: Figures are presented in percentages

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8. Post-sale commitment

It can be difficult to achieve full value for a business on sale if the key management teams are not prepared to continue to work in the business for a reasonable period of time. It is not uncommon for buyers to require commitment periods of two to three years. 

Assuming appropriate compensation, would the owner/s be willing to continue working in the business post-sale to help ensure a smooth transition?
Note: Figures are presented in percentages

Would you be willing to continue working in the business to ensure a smooth transition?

Overall,  owners are generally flexible about staying in the business after selling. In line with our 2019 survey, 77% of all owners would be willing to continue working in the business to ensure a smooth transition with the majority of them willing to work for at least 12 months.

However, only 22% of respondents were willing to work in the business for more than two years. This is potentially a concern given that it is not uncommon for buyers to require commitment periods of two to three years. We therefore recommend that owners potentially prepare for longer handover terms in planning for their business exits and transition to retirement.

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9. Conclusion

A large number of business owners are planning to exit their business and retire in the next five years. However, many business owners do not appear to have adequate exit strategies or appropriate savings plans in place. We generally recommend business owners to start preparing for the sale of their business at least three to five years prior to a planned exit. We’ve outlined some key steps you should take below.

01

Strategic planning

Identify business strategies that may be help you achieve maximum value for your business in preparation for when you ultimately decide to sell.

02

Review structures

Seek advice in relation to whether you should be re-structuring to maximise the likely return from your business on an after-tax basis.

03

Valuation

Obtain an independent valuation to establish a realistic and informed expectation regarding its current value and to identify factors that may be limiting its value.

04

Advisor

Appoint an advisor who can help you to determine the exit pathway that is most likely to result in maximum value.

05

Retirement planning

Business owners should also combine their exit planning with their personal wealth planning.

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exit planning I need help planning the exit of my business

Do you want to increase the value of your business and achieve your desired exit outcomes?
We can work with you to ensure you achieve optimal value on the sale of your business and minimise the tax paid in proceeds.
Get in touch