We talk a lot about exit planning for business owners on this site. Exit planning terminology can be a little confusing and have different meanings depending on who is being asked. Sometimes it goes beyond just the terminology to how the terms are related, meaning embedded in each other.
Many business owners believe exit planning is the same thing as succession planning. But these are two different concepts, related but different. To make clear what each is and is not, here are some descriptions.
Succession Planning identifies owner and management successors for a business. It also provides the identified successors with training and experience to develop into their future roles of replacing the existing owners-management of a business at a later time. Thus, succession planning focuses on the transfer of leadership and management to the next generation.
Succession planning is therefore a sub-component (sub-set) of exit planning. It assumes the business will continue as-is, but merely be transferred to the next generation. This is one of the possible strategies of an exit plan.
Exit Planning involves a complete analysis of all of the factors that impact a business owner. This includes a wide range of issues that are important, including the business owner’s current and future planning with respect to their business. This includes the business value, tax planning, its market position, employees, the owner’s family situation, and the wider community.
Exit planning starts with the business owner’s goals and objectives in each of the above-mentioned critical areas. Also, his or her current and projected resources are considered. Among these assets are the value of the business and other financial resources. Personal non-monetary resources need to be considered also. Then the specific strategies and actions that allow the business owner to reach their goals can be better identified.
Succession Planning and Exit Planning are dependent on each other. A succession plan for the business should be part of a properly designed exit plan. It is one of the several items to be considered in the comprehensive exit plan. It is a sub-component.
A business owner should have both a Succession Plan and an Exit Plan ready to go. If the exit plan is well done, then a succession plan should have been considered and current. If it is difficult to identify the right individuals that would make for a feasible succession plan, then alternate exit strategies may be suggested in the exit plan.
Every company, business, and owner is unique. A properly constructed exit plan will take all of this into consideration. An exit plan is not complete without considering the factors involved in a well-executed succession, should that be the strategy that is decided on.
