Business owners in Sarasota often get confused when it comes to planning their exit or succession. While exit and succession planning are similar in nature, they both employ different approaches to transition and maximization of business value.

The best way is to hire an experienced CPA in Sarasota, Florida, to determine which of the two planning methods is best suited for you and your business. However, you must know how exit planning and succession planning differ from each other, as this will allow you to better understand the strategy your CPA forms. 

Key differences between exit planning and succession planning

Exit planning mainly focuses on your financial and personal objectives to help you achieve your desired outcomes while minimizing potential risks. The goal is to enhance your business’s appeal to attract potential buyers and ensure a seamless transition.

On the other hand, succession planning emphasizes identifying successor(s) and grooming them to take over your business. The identification is mainly based on observing skills and knowledge essential for leading the company while preserving its legacy.

Here are the key differences between exit planning and succession planning:

• Objectives and goals: Exit planning is suited for those who plan to maximize the value of their business and cash out, whereas succession planning is better for those who intend to preserve their business legacy.
• Timeframe and complexity: Exit planning is a lengthy and complex process involving working with an advisory team or board to create the plan, whereas succession planning is more straightforward and focuses on grooming the successor within the family or internal network.
• Emotional aspects: The focus of exit planning remains on maximizing the profit, which can bring instability to the business. Succession planning, however, maintains stability in organizations and minimizes disruptions. 

Features of a well-designed plan

A well-drafted exit or succession plan will have the following features:

• Minimizing obligations of capital gains tax.
• Improving financial stability in the business.
• Reducing exit stress.
• Facilitating smooth transition.
• Securing the retirement income for you.
• Protecting the brand value of your business.

Understanding different strategies that may work out the best

While your CPA will consider several aspects to give you the best solutions per your needs, the most common strategies employed for exit or succession planning:

• Family succession
• Merger or acquisition
• An employee share scheme (ESS)
• Management buy-out or co-founding
• An open market sale
• Selling to suppliers or competitors

Final thoughts

Business owners may opt for different exit or succession plans based on their goals and preferences. Regardless of your plan, it’s imperative to ensure that your business does not lose its value. The best way to draft your plan is through a professional CPA.