In this post, we will clarify the subtle but vastly important differences between succession planning and Exit Planning. Clarifying the meanings behind these concepts will allow you and your clients to examine and successfully implement The Seven Step Exit Planning Process™ , which is critical to assure that your clients exit their businesses smoothly and successfully.
Many advisors often mistake succession planning and Exit Planning as the same process under different names. This error can leave owners unequipped for the most important financial event of their lives: exiting their businesses. Fortunately, this post will shed light on the important differences and inherent similarities between the two concepts, allowing you to advise your clients with greater confidence and clarity.
Succession Planning Is Business-Centric
Succession planning focuses on preparing the business for an owner’s exit. Specifically, succession planning concerns continuity within leadership and management following an owner’s exit. In other words, succession planning is a specific cog in the Exit Planning machine. When discussing business exits with your clients, do not assume that succession planning will be the highest-priority item. While succession planning is an important part of Exit Planning, you must remember that it focuses on the business from which the owner is departing rather than your client, the owner.
Exit Planning Is Owner-Centric
Exit Planning is a comprehensive analysis of all of the factors that affect an owner’s departure from his or her business. While Exit Planning includes succession planning, it also addresses issues more directly relevant and critical to owners, such as whether they can leave the business when they want, to whom they want, and for the money they want and need. Exit Planning is an intricate process in which Exit Planning Advisors seek, create, and implement combinations of strategies and steps that uniquely address each owner’s goals and aspirations.
The following seven Steps serve as the foundation for all properly crafted Exit Plans:
Step One: Establish Owner Objectives
Step Two: Quantify Business and Personal Financial Resources
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
The easiest way to remember the difference between succession planning and Exit Planning is to equate them to the cog and the machine. Both types of planning are compatible; in fact, succession planning plays an inherent role in Step Six of The Seven Step Exit Planning Process (Business Continuity).