Business Exit Planning: What to Sort Out Before You Sell

For most business owners, the sale of the business is the single largest financial event of their lives. It is also the one most likely to be undermined by decisions made — or not made — years earlier.

By the time a buyer is at the table, the structure of your business, the way assets are held, and the facts that determine your tax position are largely fixed. Restructuring at that point is expensive, sometimes impossible, and can spook a buyer. The window to shape the outcome opens years before settlement, not months.

Here is what to sort out early, and why the sequencing matters as much as the substance.

Start years out, not months out

There is a meaningful difference between the options available to an owner three to five years out from a sale and those available to an owner three months out.

Start early and you can still restructure ownership where it makes sense, move assets into the right entities and let the holding periods run, bring family members or key staff into equity gradually, clean up loan accounts and related-party balances, and get several years of properly prepared financials that support the price you want. You can also time the sale around your own income position, so the proceeds land in a year that works for you rather than against you.

Leave it late and the list shrinks to negotiating the deal in front of you. Concessions you might have qualified for are gone because a test was failed in a prior year. A restructure that would have saved a material amount of tax now triggers its own CGT event, or takes longer than the buyer will wait. Due diligence surfaces problems you have no time to fix, and the price gets adjusted accordingly.

Nothing about early planning commits you to selling. It simply means that when you do decide — or when an unsolicited offer arrives — you are transacting from a position of strength.

Get the CGT small business concessions right — before you sell

The small business CGT concessions are the most valuable tax planning opportunity available to most business owners. Used well, they can substantially reduce — and in some cases eliminate — the tax payable on a sale, and allow a large contribution into superannuation on top of the standard caps.

The critical point is that eligibility is determined by facts that already exist. Whether an asset qualifies as an active asset, whether the entity satisfies the turnover or net asset value threshold, who the significant individuals are, how a discretionary trust has distributed income in past years, and whether the ownership structure delivers the concessions to the right people — these are settled by history, not by what you write into the contract of sale.

Common problems we see when owners look at the concessions too late include assets held in the wrong entity, so the concession flows to the wrong taxpayer; passive assets such as surplus property or investments sitting inside the operating entity, which can affect the asset tests; trust distributions in prior years that undermine the participation percentages the concessions rely on; net asset values that have drifted above the threshold because of assets that could have been dealt with earlier; and interests acquired too recently to satisfy the required ownership period.

None of these are fixable on settlement day. All of them are fixable with a few years of runway. A concessions review conducted early — and then revisited annually — tells you which tests you currently pass, which you are at risk of failing, and what needs to change to protect the position.

Succession and timing are the same conversation

A sale to a third party is only one exit path. Transferring the business to the next generation, selling to a management team, or staging a gradual buy-out all produce very different tax, cash flow and family outcomes — and they interact directly with the position described above.

Bringing a child or a key employee into ownership changes participation percentages, and therefore who can access which concession. Staging a transfer over several years spreads the tax across several years, which may help or hurt depending on your other income. Retaining a minority interest keeps you connected to a business you no longer control. Each of these is a tax decision and a family decision at the same time, and they are rarely best resolved in the same year you want to sell.

Timing also has a personal dimension that is easy to overlook. Your age relative to superannuation preservation age and contribution rules affects how much of the proceeds you can shelter in a low-tax environment. The proceeds need to fund a retirement that may run for thirty years or more, so the question is not only what the sale nets you, but what income that capital can reliably produce afterwards. And the non-financial side matters: owners who exit without a clear sense of what comes next often regret the decision even when the numbers were excellent.

Get the structure right before you go to market

Buyers and their advisers will look closely at how the business is put together. A clean structure supports the price; a messy one invites discounts, warranties and delay.

Before you go to market, work through the following.

· Related entities and asset ownership. Trading operations, business premises, intellectual property and plant are often spread across several entities. Understand what a buyer is actually acquiring, what you intend to retain, and whether any of it needs to move — noting that moving assets is itself a taxing event and needs lead time.

· Ownership percentages and who holds them. Interests held personally, through a trust, through a company or through an SMSF each behave differently on sale. The right answer depends on the concessions you are targeting and on your estate planning intentions, not just on how the structure happened to evolve.

· A current buy/sell agreement. If you have co-owners, a documented and funded buy/sell agreement should already be in place — well before a sale process starts, and certainly before anyone’s health or circumstances make it urgent. Without one, the death, disability or departure of a co-owner becomes a negotiation with a family or an estate at the worst possible moment. Funding is usually arranged through insurance, and the policy ownership needs to be structured with the tax consequences in mind.

· Documentation and governance. Leases, employment contracts, key customer agreements, licences, minutes and registers all get tested in due diligence. Fixing them takes weeks; finding them broken mid-transaction costs money.

· Personal and business finances separated. Loan accounts, Division 7A balances, personal expenses run through the business and undocumented related-party dealings all complicate a sale and depress the presented earnings.

Your advisers need to work as one team, from the start

The most common — and most expensive — failure in exit planning is not a technical error. It is a coordination failure.

The accountant optimises the tax position. The lawyer drafts the sale documents. The wealth adviser is brought in after settlement to invest the proceeds. Each does competent work, but nobody is holding the whole picture, and the decisions interact. A structure that minimises tax on sale may be the wrong vehicle for holding the proceeds for the next thirty years. A sale structured as an earn-out changes the tax timing and the reliability of your retirement income. A buy/sell arrangement funded through the wrong policy ownership can create a tax liability that nobody priced in.

Bringing everyone into the same conversation early costs very little and changes the outcome. One agreed plan, one sequence of steps, one set of assumptions — with the accountant, the lawyer and the wealth adviser each contributing to the same objective rather than solving their own piece in isolation.

What we do for our clients

At Hewison Private Wealth, we sit on the owner’s side of the table for the whole journey — before the sale, through it, and for the decades that follow. We are independent and fee-for-service, which means our advice is not tied to any product, platform or institution, and we are not paid to steer you toward one.

In practice, our work with business owners planning an exit looks like this.

· Mapping the exit before it happens. We build a long-range strategy that models what the sale needs to deliver, what the proceeds must fund, and what a realistic timeline looks like — so the sale decision is made against a plan rather than in reaction to an offer.

· Coordinating your advisory team. We work alongside your accountant and lawyer, and can introduce specialists where you need them, so the tax, legal and wealth pieces are solved together. If a structural change is needed, we help sequence it with enough runway for it to work.

· Structure, ownership and buy/sell review. Along with your accountant we review how your business interests and related assets are held, and whether the current arrangements support the outcome you want — including making sure a properly funded buy/sell agreement is in place and appropriately structured.

· Superannuation and SMSF strategy. Superannuation is often the single most effective place for sale proceeds to land, and the small business CGT concessions can allow contributions well beyond the standard caps. We advise on contribution strategy and manage SMSFs where that structure suits, including the shift from accumulation into retirement pension phase.

· Investing the proceeds. We build and manage direct investment portfolios designed to produce reliable income and long-term growth, so the capital you spent decades creating keeps working. You retain visibility of what you own — we do not hide the portfolio inside a product.

· Retirement and cash flow planning. We model the income the proceeds can sustainably support, stress-test it against market and longevity risk, and adjust it as your circumstances change.

· Estate and intergenerational planning. A liquidity event of this size changes your estate position materially. We work through how wealth passes to the next generation, including where a family succession or gradual transfer of the business is part of the plan.

· Risk and insurance. Personal and business insurance cover reviewed against the plan — critical while you still depend on the business, and reassessed once you no longer do.