Exit Planning vs. Succession Planning. What’s the Difference?
As a small business owner in Alberta, you've likely invested countless hours, resources, and passion into building your business. No matter where in Alberta you’re running your business, the day will inevitably come when you need to think about your “exit”. When it comes to transitioning out of a business, two key strategies often come up: exit planning and succession planning.
Now, if we’re keeping it real — exit planning is part of succession planning, and succession planning is part of exit planning. BUT if we get into the details, there is a difference worth discussing between the two. Read on to learn more.
What is Exit Planning?
Exit planning is a comprehensive strategy designed to prepare a business owner for the sale or transfer of their business. It focuses on maximizing the value of the business, ensuring a smooth transition, and aligning the exit with the owner’s personal and financial goals. Exit planning typically involves:
Valuation of the Business – Determining the worth of the company to set a realistic sale price.
Financial Planning – Ensuring the owner achieves their financial goals post-exit.
Identifying Potential Buyers – Finding suitable buyers, whether they are competitors, investors, or employees.
Legal and Tax Considerations – Structuring the sale to minimize tax liabilities and legal risks.
Operational Readiness – Preparing the business to function independently of the owner.
Exit planning is often a long-term process, ideally starting several years before an owner intends to step away. The goal is to ensure that the owner exits on their terms while securing their financial future.
What is Succession Planning?
Succession planning, on the other hand, generally focuses on identifying and preparing individuals within the company to take over leadership roles. This process ensures continuity and sustainability of the business, particularly in family-owned or privately-held businesses. Succession planning typically involves:
Identifying Key Successors – Selecting employees, family members, or partners who can take over key leadership positions.
Training and Development – Providing the necessary skills, experience, and mentorship to prepare successors for leadership.
Gradual Transition – Ensuring a smooth shift of responsibilities to maintain stability.
Legal Structuring – Establishing ownership agreements and governance policies.
Maintaining Company Culture – Preserving the vision, mission, and values of the business through a seamless leadership transition.
Unlike exit planning, succession planning is often an ongoing process that ensures business continuity for the long term.
Why Early Planning is Vital
Many business owners in Alberta only think about exiting when they're ready to retire or when faced with unexpected circumstances. However, exit planning should be an integral part of your business strategy from day one. Here's why:
Maximizes business value: Early planning allows you to identify and address factors that impact your business's value. You can work on improving financial performance, strengthening customer relationships, and developing intellectual property.
Provides options: Having a plan gives you more control over when and how you exit. It allows you to be proactive rather than reactive, potentially opening up opportunities you might not have considered.
Ensures business continuity: Proper planning helps maintain the business's stability during transition. This is particularly important for small businesses that play vital roles in their local communities.
Reduces stress: A well-thought-out plan can make the exit process less stressful for you, your employees, and your family. It provides clarity and direction during what can be a complex or emotional time.
Attracts potential buyers: A business with a clear succession plan is often more attractive to potential buyers, as it demonstrates foresight and stability.
Tax optimization: Early planning allows you to structure your exit in a way that minimizes tax implications, potentially saving significant amounts of money.
When to Start Thinking About Your Exit
The short answer? Now! Whether you're just starting out or have been in business for decades, it's never too early to start planning your exit. For small town and rural businesses in Alberta, this is particularly important. These businesses often form the backbone of their communities, and their transitions can have significant local impact.
Consider revisiting and updating your exit strategy regularly, especially during these key moments
When you hit major business milestones (e.g., reaching profitability, expanding to new locations)
During annual business reviews
When there are significant changes in your industry or market
As you approach retirement age
When faced with unexpected personal or business challenges
After major life events (marriage, birth of children, health issues)
Remember, your exit strategy should be a living document, evolving as your business and personal circumstances change.
Which Strategy is Right for Your Business?
The choice between exit planning and succession planning really depends on long-term goals. If you’re looking to sell your business and secure your financial future, exit planning is the way to go. If you want to ensure business continuity by passing leadership to a chosen successor, succession planning is the better option. In many cases, business owners benefit from incorporating both strategies, ensuring a strong exit while maintaining stability for employees and customers.
ExitNavigator: Making Business Transitions Easier
Your business is your business, and we’re here to help you find a path that fits your goals. There is no one-size-fits-all when it comes to building, scaling or transitioning a business. So if you’re ready to start, grow or exit we have experts ready to help.
