Many advisors believe that succession planning and Exit Planning are terms that describe the same planning process for business owners interested in leaving their businesses. This misconception is one that can leave owners unprepared for the biggest financial event of their lives. In practice, succession planning and Exit Planning are different concepts but can work in unison to achieve an owner’s overall exit goals.
Succession Planning: Business-Centric
Succession planning relates to a business, specifically, its continuity of leadership and management when one owner leaves and another takes over. Certainly, continuity is an essential aspect of Exit Planning, but succession planning is business-centric, not owner-centric.
Exit Planning: Owner-Centric
Exit Planning, on the other hand, is the comprehensive analysis of all of the factors that impact the departing business owner. Exit Planning includes managing the succession aspect of leaving a business, but it also addresses a wider range of issues critical to the business owner. It answers three questions all business owners should ask themselves: Can I leave the business when I wish, for the money they need, and to my chosen successor? In Exit Planning, advisors identify, create, and execute the unique combination of strategies and steps necessary to achieve the owner’s goals and aspirations.
Properly crafted Exit Plans share several common elements that we organize into seven steps.
Step One: Establish Owner Objectives
Step Three: Maximize and Protect Business Value
Step Four: Ownership Transfers to Third Parties
Step Five: Ownership Transfers to Insiders
Step Six: Business Continuity
Step Seven: Personal Wealth and Estate Planning
We will describe each of these in the next seven articles.
As you can see, succession planning and Exit Planning are not incompatible. In fact, succession planning (Step Six) is an important element of Exit Planning. There are many elements in a comprehensive Exit Plan, and next week we’ll start at the beginning: establishing the business owner’s goals.