Editor’s Note: This is the second article in a two-part series examining the differences between exit and succession plans. Part one was published in the July 4 issue of The NEWS.

When it comes to transferring a business, five options are available (sale, recapitalization, employee stock ownership plan, management buyout, and gifting) and each has different motives, ranges of value, tax implications, structures, and fees.

A written exit plan defines the owner’s goals, the salient parts of his or her wealth (liquid and illiquid), the value of the available options, the net amount after taxes and fees, tax implications, titling of all assets to assess estate tax exposure, legal agreement review, insurances, and investment considerations. An exit planner’s role is to design and to quarterback this process during the execution with the accountants, lawyers, tax professionals, insurance advisors, and wealth consultants.

An exit plan also puts the owner in control with a clear path to make an informed decision, control the process, leave the business on his or her terms, select to whom he or she wishes to transfer, and decide when he or she wants to exit. The exit process liberates the owner by allowing him or her to move trapped money out of his or her business, protect his or her wealth, and move into the next stage of life.


The succession plan is about preparing the company to succeed in the absence of the owner/CEO. In a simple approach, it is about grooming management to move into leadership, then into ownership, and ultimately establishing the new CEO. In a broader sense, it is about building value, creating a culture of continuous succession that focuses on the human capital, delivering a top-quality product to customers, recurring cash flow, and protecting the future of the company by:

• Establishing a clear direction and focus;

• Professionalizing the company;

• Developing and improving management systems;

• Developing and training the human capital;

• Training for teamwork (their blind spots) and leadership (focus on others);

• Locking in key players;

• Selecting the new stockholders (owners);

• Moving them into ownership (focus on the company); and

• Selecting the new CEO.

The owner’s mindset for succession must:

• Clearly envision his or her financial future before moving forward (exit plan);

• Envision being outside of the business before initiating the succession process;

• Control the timing of when and with whom in concert with their goals; and

• Lead the process but allow the team to grow, stretch, and make mistakes.

A succession plan may take several months to write and several years to execute. The goal is to have the company run without the owner/CEO. Depending on the readiness of the management and the type of exit and current payout, a succession plan may take three to 10 years to occur. On the other hand, if the business is systematized, has clean financials, and mature management is in place, the company could be sale-ready in less than a year.


Which plan comes first? Steven Covey suggests, “We begin with the end in mind.”

My professional view is the owner must first deal with the exit plan so he or she can ensure and envision his or her financial future. This then allows the owner to focus on succession so he or she can build the championship team that allows him or her to let go in order to stretch and coach them into leadership and ownership.

The exit plan leads the owner through a proprietary process that will meet his or her business, personal, and financial goals while objectively examining options for monetizing and protecting the individual’s hard-earned wealth. Once the owner is comfortable with meeting these exiting goals, he or she can move into the succession goals of identifying who will be the next leaders and the CEO of the organization.

Succession is a continuous process in a best-of-class company. Annual programs should focus on developing and stretching associates, not just the replacement of key positions. In this scenario, the company would always be near a sale-ready condition. This plan can be in motion before a formal exit plan or can be formally executed afterward.

The great news about succession is that it adds bottom financial value no matter which exit path an owner takes.

Remember, the key is to start early. Exiting and succession are not events but complex processes that take time. The exit plan will get the process started, while the succession plan will bring everything together to allow an owner to gracefully exit the business and protect his or her wealth.

For additional free educational information on these two disciplines and my succession white paper, visit my website at www.beaconexitplanning.com.

Publication date: 7/25/2016

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