One of the questions we often hear from business owners is, “What is the difference between Succession Planning and Exit Planning? Aren’t they the same thing?” Surprisingly, they are not. The next question usually is, “Which one do I need?” The answer is simple. Whether the business is small or large, family-owned or not, astute business owners always need both.
Nearly $10 trillion dollars in business assets will be transferred globally in the next decade, according to Forbes Magazine. Baby Boomers selling privately owned businesses or transferring them to family members will comprise much of that $10 trillion dollar transfer. As the market becomes crowded with owners ready to sell, the advantage will go to those owners who have done their due diligence, considered all of their options, and planned for unexpected contingencies.
Succession Planning focuses solely on transferring leadership inside the business from one generation to the next. Succession plans identify key individuals within the organization who can be trained and mentored to someday take over as the existing business leaders exit. Succession Planning is just one necessary aspect of a more comprehensive exit plan.
Exit Planning incorporates succession planning with strategies for building transferrable value, reducing tax liability, preparing for unexpected contingencies, minimizing family stresses, and increasing the likelihood of a successful business transfer. Exit plans also incorporate the personal and financial goals of the business owner, their spouse, and their family. A prudent exit plan starts and ends with the long term business and personal objectives of the owner.
Plan Ahead for A Successful Exit
Succession plans and exit plans so share an important characteristic – neither should wait. Business owners who eventually want to sell for top dollar with the least amount of trouble must start the planning process early enough to give it the thought and consideration it requires. With the proper plans in place, you, the business owner, gains the ability to make critical long-term decisions that will significantly increases the likelihood of selling or transferring the business when you want, to whom you want, and for the price you want.