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Business Owners’ Biggest Mistakes: Do You Have a Succession Plan or Exit Strategy?
September 20, 2020
In our continuing series about the biggest mistakes we see from business owners, The Alexander Group takes a look at the failure of some business owners to hold themselves accountable. There are ways to escape those personal, protective bubbles to help ensure the owner makes the smartest decisions possible—reaching beyond the expertise of only themselves.
Nobody can work forever. Apathy, old age, or death remove everybody from the workplace eventually, and knowing this is especially important for business owners who want to ensure the company is run profitably long after they have stepped away from the desk.
Succession plans and exit strategies both are important for ensuring this happens, and while many businesses seem to think that these are effectively one and the same, there are a few key differences that exist between them. Even with these differences, a responsible business owner will put into place both a succession plan and an exit strategy so their company does not miss a beat when the time comes for the boss to step away.
Knowing the difference between the two is essential in properly planning for either, and TAG Business Coaching offers the type of business consulting necessary to ensure this happens.
Succession Plan
The biggest difference between the two is that a succession plan is put into place when unforeseen circumstances remove a business owner from the office for an extended absence, as would be the case with a serious illness or debilitating injury, while an exit strategy puts a plan into place when the business owner is leaving for good.
In many cases, the word “succession” conjures images of a child taking over the business for his or her parent, so even if the succession is temporary, it is essential that this internal transfer occurs as smoothly as possible.
In working with a business consultant on your succession plan, business owners must communicate what they want in the case of an extended absence because whoever takes over needs to know how to keep things running successfully.
Exit Strategy
To build an effective exit strategy, any reputable small business consulting firm will suggest answering the following questions beforehand:
- Do I really want to get out of the business?
- How am I going to get out of the business?
- What am I going to be doing in ten years?
As soon as a business owner can be honest with herself about her future plans, she can start to accommodate for what happens after she’s left the business.
Why It’s So Important to Have Both in Place
Whether an exit strategy involves selling the business, turning it over to a family member, or staying with the business until death do you part, it is imperative that business owners have a succession plan if something unexpected happens, as well as an exit strategy for when it’s time to walk away for good.
Very few businesses have a plan for something happening to the owner of a business because it is entirely too easy to get so caught up in day-to-day operations, and it’s hard to visualize ever leaving the business.
However, without a specific plan, lawyers, accountants, courts, or even apathy can consume the value of a business, and this obviously is not what an owner wants. It’s important to have contingencies in place, and succession plans and exit strategies are two of the most essential contingencies that business owners will ever need.
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
