Though often used interchangeably, “exit planning” and “succession planning” have different goals, strategies, and tools. It is beneficial for a company to have both types of planning in place to address a range of wealth, leadership, and business continuity goals.
Exit Planning
Exit planning refers to the process of developing a strategy for business owners to exit their companies, whether through a sale to an outside party, transfer to insiders, or liquidation. It involves setting goals for the owner’s departure, minimizing taxes, and maximizing the value of the business upon exit. Contrary to prevalent myths about exit planning, there can be multiple exits which an owner or ownership group can leverage to bring in capital as a company grows.
Succession Planning
Succession planning, on the other hand, is the process of training and developing internal candidates to take over leadership roles within the company when the time comes. It ensures continuity of operations and a smooth leadership transition in the event of both planned transitions and the unfortunate event of death or serious disability of key leaders. A robust buy-sell agreement plans for these eventualities. Various employee incentive compensation like options or profits interests can tie the next generation to a company, and an earn-out clause can continue involvement of a departing owner to ensure profitability.
Why You Need Both
While exit planning focuses on the owner’s personal exit strategy, succession planning prepares the company for a transition in leadership. Both require advance planning and share common elements such as identifying and grooming successors, establishing clear timelines and milestones, and communicating plans to stakeholders.
Having robust exit and succession plans in place allows a company to grow and protect business value and optimize operations. Exit planning maximizes owner outcomes while succession planning reduces disruption from leadership changes.
Contact us to develop comprehensive plans to promote your company’s stability and growth.
