By Maurie Cashman
Ownership transition planning and exit planning are often used synonymously, but they have some very real and important differences.
Given the recent discussion about Baby Boomer business owners preparing to leave their companies within the next few years, there can be confusion about the different terminology used for this planning concept. For instance, many people believe that Ownership Transition Planning and Exit Planning are one and the same and can be used interchangeably when talking about owners who are in the process of leaving their businesses. This misconception can end up leaving you unprepared for one of the biggest financial events of your life.
Ownership Transition Planning and Exit Planning are different concepts, but ones that can work in unison to achieve your overall Ownership Transition Objectives. To help clear letâ€™ differences that exist between these two popular concepts.
Exit Planning: Focus on Leaving the Business
Exit planning is an important concept for owners who are leaving their businesses, but this type of planning primarily focuses on the sale of the business. In most cases the focus is on preparing the business for sale to a third party and the ownerâ€™s objectives are often neither identified nor tested to see whether they are achievable.
While exit planning is an important topic for owners who are in the process of leaving their businesses, it typically addresses only one aspect of your successful exit from business. This type of planning predominantly focuses on the business itself and its sale for maximum value on an â€œas-isâ€ basis. Although this is important to the ownerâ€™s livelihood post sale, it largely ignores the planning process that should take place to identify and capitalize on value drivers that can make the business much more valuable. It also often ignores the myriad of strategies that can take place in favor of simply selling the business. Ownership Transition planning involves a Business Continuity approach, which is one of several critical Components of Ownership Transition Planning.
Ownership Transition Planning: The Comprehensive Approach
Ownership Transition Planning, on the other hand, is the comprehensive analysis of all of the factors that impact a business owner. Ownership Transition Planning addresses not only the succession aspect of leaving a business, but also a wide variety of other issues that can be important to you, including current and future planning with respect to your personal financial stability, your business (its value, its employees, its position in the market), your family and your community, customers and supplier relationships. It also focuses on the financial stability of the business, from which you are likely going to be partially reliant for your future income.
Ownership Transition Planning starts from the perspective of your goals and objectives in each of these critical areas, along with your current and projected resources (business value, personal and business financial resources), to identify the unique combination of strategies and steps that are most likely to allow you to reach your overall goals. It also involves carefully examining your lifestyle and developing a plan for what you are going to do after the completion of your ownership transition.
There are many tools available to help you get into business, but few to help you get out. The Ownership Transition Planning Process practiced by Aspen Grove Investments is a customized, comprehensive approach to designing and implementing your successful Ownership Transition from your company. Ownership Transition Planning uses your unique personal objectives to convert your current reality into your desired outcome. The Ownership Transition Planning Process helps maximize the financial return, minimize tax liability, plan for contingencies and increase the likelihood of a successful transfer of the business.
Although each Ownership Transition Plan is unique depending on an owner’s specific objectives, a properly designed plan has several common elements. The elements involved in creating a comprehensive Ownership Transition Plan include:
- Step 1: Owner Objectives
- Step 2: Business and Personal Financial Resources
- Step 3: Maximizing and Protecting Business Value
- Step 4: Ownership Transfers to Third Parties
- Step 5: Ownership Transfers to Insiders
- Step 6: Business Continuity
- Step 7: Personal Wealth and Estate Planning
Exit planning and Ownership Transition Planning are not incompatible. Exit planning is an important element to the longevity of a company, but it is only one piece of an overall, comprehensive Ownership Transition Plan. It is important for you to work with a trained Ownership Transition Planning Professional so that the exit plan for your business fits neatly into your overall Ownership Transition Plan.