Succession Planning versus Exit Planning

By Trip Holmes

At Sabre Capital, we’ve spent nearly 35 years offering a full complement of advisory services to our clients running middle-market, family-owned businesses. All of our services have one goal in mind, an exit at the optimal valuation, enabling our clients to shape their destinies and protect their legacies.

A couple of the services we offer on a routine basis are succession planning and exit planning. Among the general public, these services are sometimes unclear. Let’s take a look at both succession planning and exit planning to promote a greater understanding. 

Succession Planning

Succession planning is an ongoing process, much like estate planning or financial planning, where you, the business owner, try to deepen your company’s leadership bench. During this process, we help our clients identify who the key leaders are in a company and how they are preparing to take on greater roles in the future, including the person to eventually take over as CEO. In family-owned businesses, this can often—but not always—be a family member of the founder.  

Succession planning is a generational exercise, aimed at identifying and preparing those leadership and management replacements over time, so that they are ready to take on new roles when the founder/owner retires (or, sadly, passes away). Many people like to think of succession planning in terms like continuity planning or contingency planning, knowing that life will catch up to the business at some point, and not always in the form of an emergency.

Another final note on succession planning: this type of planning is a key component, one of the most important parts of exit planning. Knowing the individuals and groups of leaders, family and non-family alike, who can take over the business in the wake of your retirement, and perhaps more importantly how to prepare them for this eventuality, is critical to the success of your larger exit strategy.

Exit Planning

I think of exit planning as a much more comprehensive strategy to help business owners optimize all aspects of their companies to achieve the maximum valuation, identify the right buyer, and realize their goals, both professionally and personally. Together, we look at a variety of factors, starting with the owner’s goals. We determine strategies for the sale that will optimize the owner’s retirement income, look at ways to shore up the company’s financial strength, and of course look at developing potential successors if no one is ready to take on that mantle. 

I encourage owners during their exit planning to think about all key stakeholders of the business: owners, management, employees, and customers. What’s great about this approach is that it really gets the business owner to run their business with greater focus on all aspects. Exit planning makes you better during the process—it’s like taking vitamins for each part of the business. You pay better attention to finances, human resources, capital investments, and better meeting the evolving needs of your customers.

As you form and follow an exit plan—and as with other types of long-term planning, it’s never too early to start—you realize that your business gets healthier and moves along a path to achieving a target valuation, leaving you ready to strike when the market is at its best, leaving no money on the table. Those who plan and execute deserve their rewards!

At Sabre Capital, we enjoy working with family business owners, as they tackle the toughest questions posed in business and in life. Having the courage to plan your exit shows true leadership. It’s looking out for your family and the others who have helped you build a successful company. Contact us at Sabre Capital to begin planning for your exit, and we’ll help you identify successors who will honor your legacy and take the company to new levels of success upon your retirement.