For business owners preparing for the next chapter in the business cycle, the terminology used by consultants can be a little confusing. Most owners believe that succession planning and exit planning are the same, but they are not. We offer the following descriptions of each term to assist those of you who are looking to transition your ownership soon.
Succession planning is one component of exit planning. It is a strategy employed by current ownership to identify successors within the business and to assist them with opportunities and training, so the next generation of leadership is prepared to manage the business activities. The primary focus of succession planning is to maintain continuity in the business, so the business continues uninterrupted.
Exit planning, on the other hand, is a more comprehensive analysis of all factors that impact a business owner. Exit planning is focused on the business owner, rather than the business itself. For example, the exit planning process starts with identifying the goals and objectives of the business owner.
Often, the business is just one asset in your portfolio that can be leveraged to achieve your goals. You might need a lump sum of money today to meet your goals; therefore, a sale of the business to an outside party might make sense. Or maybe you can afford to self-finance the sale of the business. This option creates other potential buyers like an employee stock ownership plan or individual employees currently working in the business.
Succession planning and exit planning often work together to meet the business owner’s goals. Professionals who specialize in both areas frequently work together to develop a plan that achieves the owner’s overall exit plan.
Mike Metzler, CPA/ABV, CMA, CGMA, ASA