Exit Planning…Succession Planning…What’s the Difference?

It's not uncommon for a person who is well acquainted with my work to introduce me to another professional in this manner, "I'd like you to meet Steve Craig. His firm does Succession Planning."

People unfamiliar with Exit Planning want to assume that it is the same as Succession Planning, that the terms are interchangeable. They are not.

Succession Planning is a term that relates to a BUSINESS and ITS ability to continue through the change of management or ownership. It is a business focused exercise. It includes providing successor management the opportunity to develop necessary skills. It may include contingency planning techniques to protect the company against the death of key management personnel.

Succession Planning is an important topic to many owners of closely held companies, but it is only one of many aspects of Exit Planning.

Exit Planning is focused on the needs of the business owner not the business itself. In the closely held business market, you might think of the two as inextricably linked, but we start first with the owner's objectives and then build a comprehensive plan. An exit plan is a road map that begins with the owner answering three critical questions:

1. When does he expect to leave?
2. How much money does he need from the sale of the business and other assets to support his post-sale lifestyle?
3. Who is likely to take over the business?

After those questions are answered and we understand the owner's basic objectives, we dig deeper. We might learn that the owner must grow the business to achieve his financial needs in retirement. We might learn that the owner wants to hand the business off to a family member and will need the support of other key management team members to make the transition. This calls for succession planning. After addressing succession planning we address how the business planning coordinates with the owners overall estate planning.

So, while Exit Planning and Succession Planning sound alike, think of Exit Planning as a comprehensive strategy for an owner to use in the years prior to leaving his or her business, with succession planning being a sub-set of a comprehensive exit plan.