While they may sound like completely different strategies for how you’ll deal with your business once you’re no longer in a position to run it, they’re not as separate as you’d imagine. They both put into action a plan for how you’ll move your business to someone else.
So, what do we mean by succession planning and exit strategy and are there differences between the two?
Succession planning is about transferring leadership
This usually means from you to another person or persons. This might be family or it could be another business partner. As you are moving your responsibilities in the business over to them, you’ll need to consider how you do this. It will often involve putting together a training plan on getting everyone up to speed on what they will need to do. For example, are your children ready to take on the task of running the business in your absence?
An exit strategy is about preparing for leaving the business
While this can be selling the business it doesn’t need to be. It gives business owners the opportunity to think about what they would like to happen with it after they’re no longer involved. It means looking at the financial situation of both the business owner and the business itself and understanding what financial goals the business owner has after they exit. For example, if the business is up for sale then the goal will be to maximize the sale price. How can this be achieved in the period between now and the time to sell?
Succession and exit planning help each other
The end goal for you is that your business continues successfully after you’re no longer involved. Both succession and exit planning help you to achieve this. Having an exit plan means knowing what you want to achieve out of the sale/transfer of the business whereas succession planning bridges the gap between where you are now and how you get to where you want to be with as little disruption or conflict as possible.
This is not an easy process to do by yourself and it is often helpful to be guided by a legal professional with experience in this area.