Advivo explains the key differences between a business succession plan and an exit strategy, and why you need both for your business.
Deciding when and how to move on from your business can be one of the most complex and important decisions you will make. Proper planning and preparation can help you achieve your goals and have a smooth transition that creates value for the business’s next phase. If you are considering moving on from your business, two concepts that you must consider are your succession plan and your exit strategy. In this blog, we outline the defining features of each of these plans and explain why you need both.
Defining a Business Succession Planning
Business succession planning refers to the process of preparing for the transfer of a business to new ownership and leadership. It involves creating a plan to ensure that the business continues successfully after the current owner departs or transfers ownership.
This process helps ensure continuity, preserves value, eases the ownership transition, and sets up the business for future success under new leadership. It gives a business the greatest chance of prosperity long after the current owner’s departure.
Defining an Exit Strategy
An exit strategy is a plan to sell or transfer ownership of your business so you can “exit” and move on. This gives you a way to leave your business on your terms and with the maximum return on investment while upholding your legal and tax-related obligations. It involves setting goals for what you want to get out of a sale, understanding timelines, and following steps to prepare your business and find the right buyer.
Key Differences Between Business Succession Planning and Exit Strategy
In short, a business succession plan focuses on internal options for transferring ownership and management of a company to the next generation of leaders, whereas an exit strategy examines external options for how the owners can maximise their return when they depart the business. This may involve selling to outside buyers, merging with another company, or liquidating assets.
Why You Need Both
Business succession planning and exit strategies serve different but complementary purposes. Having both ensures you can continue and grow your business while also having a plan to eventually leave it.
Succession planning focuses on continuity – identifying and training successors to take over the business so it can thrive beyond your involvement. This is about transitioning leadership and ownership over time to maintain business operations.
An exit strategy focuses on the endpoint – how you will ultimately exit the business and realise your financial and personal goals. This involves deciding when and how to leave by selling or transferring ownership in line with your desired timeline and objectives.
While succession planning prepares the business for life after you, the exit strategy prepares you for life after the business. Having robust strategies for both helps ensure your business legacy and financial security. It provides for business continuity with new leadership while freeing you to enjoy retirement.
Develop your Succession Plan & Exit Strategy with Advivo
The time to develop your succession plan and exit strategy is well before you intend to depart. By proactively consulting with specialists like Advivo, you can create a timeline for phasing the processes, control the transfer on your terms, and ensure the people and systems are prepared for the changes. Contact the experts at Advivo today to start developing your exit strategy and for business succession planning.