Ready To Sell Your Business?
Succession Planning Vs. Exit Planning
A succession plan is a continuity plan and is essential to securing the future of your business. It’s the art of the changeover. Without a succession plan, you will strangle the future of your business and its future marketability.
A succession plan gives you control, choices and sufficient time to put management in place to run your business. The more time you give yourself, the more your team can come up to speed on new roles and responsibilities, and the easier it will be for you to let go and move on to pursue other interests or passions.
Succession planning could also be called “Retention Planning” — keeping it in the family.
Many owners choose to keep the business in the family when they leave. If this is something you’re thinking about, you need to consider the legal obligations, as well as the impact on family relationships.
Exit planning is the art of monetising the business.
Exit planning is all about maximising and preserving the transferable value of your business—it’s about creating certainty for your future wealth fund. It’s extremely important to integrate personal, financial and estate planning goals into your exit plan.
These need to be considered hand-in-glove with your business growth goals and opportunities to maximise profit and minimise tax liability on both sides. Your unquestionable objective in your exit plan is to transfer ownership and corporate value as profitably as possible. Take this responsibility seriously early on and you will reap the rewards for all your hard work — and not give it to the taxman or others!
With the recent buzz about baby boomer business owners preparing to leave their companies within the next few years, there can be confusion about the different terminology used for this planning concept. For instance, many people believe that succession planning and Exit Planning are one and the same and can be used interchangeably when talking about owners who are in the process of leaving their businesses. However, this misconception can end up leaving you unprepared for one of the biggest financial events of your life.
In practice, succession planning and Exit Planning are different concepts, but ones that can work in unison to achieve your overall Exit Objectives. To help clear up any confusion, the remainder of this article will provide a discussion on the differences that exist between these two popular concepts.
Succession Planning: Focus On Transferring Leadership
Succession planning is an important concept for owners who are leaving their businesses, but this type of planning primarily focuses on the transfer of leadership and/or management from one generation to the next within the business. This one-off approach usually identifies successors within a business and provides them with an opportunity to develop their skills and experience in order to replace the existing leaders of the business at a future date.
While succession planning is an important topic for owners who are in the process of leaving their businesses, it typically addresses only one aspect of your successful exit from business. This type of planning predominantly focuses on the business itself and its continuity when one owner leaves and another takes over. Although this is important to the livelihood of your company, succession planning typically revolves around the needs and objectives of the business and not those of you, the departing owner.
Succession planning is essentially a Business Continuity approach, which is one of several critical Components of Exit Planning.
Exit Planning: The Comprehensive Approach
Exit Planning, on the other hand, is the comprehensive analysis of all of the factors that impact a business owner. Exit Planning, in the other hand, is not only the succession aspect but also other issues that can be important to you, including current and future planning with respect to your personal financial stability, your business (its value, its employees, its position in the market), your family and your community.
Exit Planning starts from the perspective of your goals and objectives in each of these critical areas, along with your current and projected resources (business value, personal and business financial resources), to identify the unique combination of strategies and steps that are most likely to allow you to reach your overall goals. There are many tools available to help you get into business, but few to help you get out.
Exit Planning uses your unique personal objectives to convert your current reality into your desired outcome. The Exit Planning Process helps maximise the financial return, minimise tax liability, plan for contingencies and increase the likelihood of a successful transfer of the business.
Although each Exit Plan is unique, depending on an owner’s specific objectives, a properly crafted
plan has several common elements, including:
Step 1: Owner Objectives
Step 2: Business and Personal Financial Resources
Step 3: Maximising and Protecting Business Value
Step 4: Ownership Transfers to Third Parties
Step 5: Ownership Transfers to Insiders
Step 6: Business Continuity
Step 7: Personal Wealth and Estate Planning