Ep #038: Exit Planning vs Succession Planning: Unraveling the Key Differences For a Profitable Business Exit
Attention Small Business Owners: Gain Clarity on Exit Planning vs. Succession Planning for a Profitable Business Exit! Do you know the crucial differences between Exit Planning and Succession Planning?
We will dive into:
🚀 The advantages of developing an exit plan ahead of time for a seamless business transition
🔑 Unveiling the true essence of succession planning and its significance for your business
⌛ Reclaiming your time and freedom through an efficient and successful succession plan
🔍 Essential questions to assess the preparedness of your chosen successor
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"Exit Planning and Succession Planning. I use these two words quite often on my podcast. And many people including myself awhile back will use these two words interchangeably while at the same time, they mean two completely different things. Today I want to talk about each of these and explain what they mean, go through the differences, and why as a business owner planning for these will be essential if you some time down the road want to exit and retire from your business."
How business owners benefit by having an exit plan
"So first is Exit Planning. Exit planning is when you focus on driving the value of your company up and integrating your personal and financial objectives into it. So imagine there are these two paths side by side, one represents your business and the other represents your personal and financial goals. In many instances each of these paths is heading in different directions, they are not aligned, not in sync with each other and they are very far apart. Exit Planning brings those two paths back together so they are aligned, there’s clarity on where you want to be with your business and personal/financial life, and both paths are working together in sync to get you there."
"Because at some point in the future, your business and personal/financial life will cross paths, representing your transition, representing your exit out of the business into the next chapter of your life. Whether that’s retirement, working on a board, being a consultant, or whatever you want that to be. Naturally when you do the right planning to get your two paths clearly defined and on the right track you will end up having lots of options on how you want to exit and it can be on your timeline because you put the work in upfront."
Exit Planning is focusing on value.
"So exit planning is focusing on value, it’s focusing on increasing the attractiveness of your company, it’s also working on your personal and financial goals and investments so that you’re not depending on the sale of your business to be your only ticket to retirement. That is exit planning."
What is Succession Planning
"Succession Planning is very different. Succession planning considers the individual or individual’s position within the business. It’s the process of identifying these critical positions within your organization and developing action plans for them to succeed in the role. So this is talking about how to keep your most talented employees and whether are there roles that you can potentially coach and train them into. For example, is there someone within your company who has the potential to take over and replace your role?
"Are there team members that could become part of a leadership team and take on a managerial role within the business? Having a focus on this will help increase the probability of people becoming qualified for your owner role. At the very least you are building a leadership team of individuals who can over time start making critical business decisions without you being in the room."
The benefits of succession planning for a business owner
"Not only does this allow you more freedom but it also gives you time to focus on higher level thinking and vision for the business. And when the time comes to start approaching buyers to sell or people start coming to you, having a strong management team behind you makes your business very attractive."
Questions to determine the readiness of your successor
"I will leave you with some questions to ask yourself and it will help you determine how ready someone is to potentially be a successor. With each of the statements, rate the person from 1 – 5. 1 being low and 5 being high."
So here’s the first one:
- How would you rate your successor on?
- Knowledge of the industry you work in? The company’s products and services?
- How would you rate them on their strategic thinking skills?
- Their decision-making and judgment?
"For each of those, rate them 1 – 5."
- How often does your successor demonstrate the following competencies?
- Solves problems rather than reacting to problems?
- Follows through on what they say and commitments they’ve made?
- Has the ability to persuade people and get others to buy in?
"These are just a few to give you ideas on how to determine if someone is ready or has potential, there are many more you can come up with and you know your business more than anyone so you should have an idea of what qualities and capabilities they need to show."
"The point is exit planning and business succession planning are essential to ensure the continuity of your business if something were to happen to you, it allows you to get back much of your freedom, and the potential for a lucrative sale of your business goes up and you can make sure you have a legacy to leave behind."