Exit Planning v. Estate Planning for Business Owners

Business owners are often focused on the growth and success of their businesses and sometimes don’t think about what they ultimately want to happen to their business during their lifetime and beyond. Exit planning and estate planning are used to help business owners define what they want to happen to their businesses in the future and create plans and documents to help ensure their stated objectives are achieved.

Is there a difference between exit planning and estate planning?

There is some cross-over to be sure, particularly in the planning aspects. However, comprehensive exit planning generally plans for the growth, protection and transfer of the business during the business owner’s lifetime and will incorporate business continuity and succession planning as well as estate planning to effectuate the business owner’s goals and provide a contingency plan for the transfer of the business upon the business owner’s disability or death. Estate planning may incorporate business succession planning for the transfer of the business to the next generation during the business owner’s lifetime, may provide a contingency plan for the transfer of the business upon the business owner’s disability, and will generally address the transfer of the business upon the business owner’s death.

Where exit planning may involve recommendations and plans for strengthening the management team, creating stability in cash flow, eliminating client concentration issues, contingency plans for key employees, and addressing other business value drivers, estate planning generally will not. A comprehensive plan for a business owner requires the integration of exit planning and estate planning.

Exit planning and estate planning would be more straight forward if each of us knew our specific life span and date of impending death.  A business owner, Joe, could decide that 12 years prior to death he would begin preparing his business for sale to a third-party, sell the business 9 years before his death, provide for himself, his wife, their children, grandchildren and favorite charities, and spend his remaining years travelling the world with his wife and checking items off of their respective bucket lists.

Unfortunately, that’s not how life and death work. Comprehensive planning includes a lot of planning that is lifetime focused. It is about identifying your objectives for transfer of your business and other assets during your lifetime and afterwards. It is about ensuring that medical and financial decisions can be made by someone that you trust in the event of incapacitation. It’s about addressing and mitigating potential tax liabilities, both business and personal, and protecting your family and the value of your business and the value of your estate.

Comprehensive planning for business owners incorporates both exit planning and estate planning tools and documents to define their objectives, identify financial gaps, grow and protect business and personal assets, prepare for a future business transfer (whether to insiders or third-parties), mitigate taxes (business, gift, estate, etc.) during life and after death, transfer wealth to the next generation, achieve charitable objectives, provide for the business owner and family during lifetime, and provide consistency and continuity with the owner’s lifetime objectives in the event of death or disability.

If you are a business owner and would like to discuss your plans for the transfer of your business ownership interest during your lifetime and beyond, just give us a call.