Succession Planning and Exit Planning: Compare and Contrast

Many advisors believe that succession planning and Exit Planning are terms that describe the same planning process for 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 ones that 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. If your client is the departing owner, succession planning addresses the needs and objectives of your client’s business, not those of your client.

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 your owner-client; namely can your client leave the business when they wish, for the money they need, and to their chosen successor? In Exit Planning we 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 1: Establish Owner Objectives

Step 2: Quantify Business and Personal Financial Resources

Step 3: Maximize and Protect 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

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 owner’s, and therefore the Exit Plan’s, goals.