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Phased, Succession, and Exit Planning: What’s the Difference?

Submitted by Jared Johnson on Fri, 09/25/2020 - 5:00pm

In the past several blog posts, we’ve discussed how most advisors are task-oriented and often think only in terms of the specific area of planning in which they’ve been trained. Meanwhile, owners are busy growing their businesses and aren’t thinking beyond the day-to-day to their eventual exits. With that in mind, who is going to initiate the conversation about short- and long-term planning for your clients’ businesses?

Owners are often not prepared for unexpected crises to occur, so the recent turn of events most likely threw a curve ball at many business owners. Some owners also assume their trusted advisor will reach out to them if their planning process is falling off track. These owners need someone to step in and give them relevant advice that can support their day-to-day struggles, while also keeping in mind their future business goals. 

With their most pressing challenges top of mind, some owners struggle to stay motivated to continue their planning journey. Identifying, implementing, and executing an appropriate plan when there are so many variables to consider and owners are distracted will take a proactive effort on your part. By using a variety of planning methods, you can easily create, explain, and complete the right Exit Plan for each of your clients. Phased planning, succession planning, and Exit Planning strategies can help your clients with short and long-term planning for any situation and desired outcome.  

Phased Planning

When an owner encounters an unexpended hardship, whether that be a change in the owner’s health, an economic downturn, or a new competitor entering the market, you first need to start gathering data and addressing the most pressing needs firsts. The areas of concern that will require your immediate attention could be anything from cash flow, continuity planning, or increasing business value through broadening your client’s customer base. Whatever your client’s main concerns are, by addressing and resolving those issues first, you are emphasizing your value to the client beyond the normal tasks of your practice. This will open the door for you to talk to your clients about other phases of planning in the future.  
Owners can often feel overwhelmed by the prospect of full comprehensive planning for the future, especially in combination with the stress of being in a crisis. Planning in phases allows you to walk your clients through each hurdle, one at a time. Completing one small step at a time can motivate owners to continue the planning process after their current hardship is addressed appropriately. 

Succession Planning

While many owners and advisors use succession planning and Exit Planning interchangeably, we find succession planning focuses primarily on who the owner wants to transfer the business to and when they want the transfer to occur. During this phase of the planning process, you will want to explore the many potential successors including co-owners, family members, key employees, Employee Stock Ownership Plans (ESOPs), and third-party buyers. Your successor recommendation to your client should be based on their goals for the business, the reliability of the current management team, the owner’s timeline, and their post-sale plans. This is not a decision to be made lightly.   
This step-in planning is critical as going down the path of one successor and deciding to change paths mid-stream causes disruption and delays to reaching your clients exit goals. Often your clients won’t know they’ve made the right decision until they begin the process of transferring ownership. Take time with them upfront to discuss their options. 

Exit Planning

By addressing an owner’s primary issues and determining to whom and on what timeline they want to transfer the business, you have already established a foundation for Exit Planning with your client. With a comprehensive Exit Plan, you move beyond the owner’s wishes for the transfer and look at their financial goals, start building business value to reach those goals, develop continuity plans, evaluate employee benefits, analyze their position in the market, and implement strategies to get them where they want to go.

Although the primary goal of Exit Planning is to help your clients leave their businesses on their terms, a comprehensive planning process encompasses more than securing a reliable successor. Be sure to discuss any value-based goals your clients may have such as their legacy, community involvement, family harmony, and activities they want to pursue in retirement. This planning process will help owners analyze the gap between what they have today, what they want for the future, and how to prepare if something unexpected happens to the owner before that gap is closed. Implementing an Exit Plan ensures that all variables have been considered and decided on before your clients leave their businesses.  

With these planning strategies you can help your clients successfully and painlessly leave their businesses on their terms. Your goal is to figure out the underlying reasons why an owner wants to sell and outline the steps they must take to achieving each of their exit goals. 


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