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There Seems to be Some Confusion: Exit vs Succession

Nov25



A few months ago, a legal journal approached me about writing an article for their publication on the difference between an exit plan and a succession plan. It seems that even your attorney doesn’t know.

Business owners often use the terms "exit planning" and "succession planning" interchangeably, but these concepts, while related, have distinct focuses and purposes. Understanding the differences between the two is crucial to ensure the longevity of your business and preserve your legacy. Or sell for an incredible valuation – whatever floats your boat.

Exit Planning: Focusing on the Owner's Departure

Exit planning addresses how and when you will transition out of the company. The main objectives of exit planning include:

  1. Maximizing the business's value
  2. Ensuring the owner's financial security post-exit
  3. Minimizing tax liabilities
  4. Exploring various exit options (e.g., selling to a third party, transferring to family members, or employee buyouts)
  5. Preparing the business for “the transfer” – whatever that may look like

Exit planning involves a number of professionals you are undoubtedly already working with: financial planners/CPAs, an attorney, and perhaps a change or strategy consultant.

Succession Planning: Focuses on The Continuity and Future Leadership of the Business.

Succession Planning is the process of identifying and developing new leaders who can replace today’s leaders when they leave, retire, or unexpectedly pass away. I don't mean to be Debbie Downer, but according to the Wall Street Journal, 19 CEOs of Fortune 500 companies died while in office in 2023. Yipes!

The primary goals of succession planning include:

  1. Identifying and nurturing talent within the organization
  2. Ensuring a smooth transition of leadership
  3. Maintaining business operations and relationships
  4. Preserving company culture and values
  5. Mitigating risks associated with unexpected departures

One thing that both the exit plan and the succession plan have in common is that they start YEARS before you plan to actually leave the business – allowing sufficient time for preparation on all fronts (my ideal timeline for succession planning is 18 months to 3 years, but that depends on the quality of internal candidates you have today).

Exit planning and succession planning are both critical for small businesses; you shouldn’t confuse them or ignore either one.

Ready to get going on your succession plan? Download our 12-month Succession Planning Calendar here.

 

By Nanette Miner, Ed.D.

Keywords: Entrepreneurship, HR, Leadership

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