In the world of business, there is common reference to business plans, succession plans, development plans, exit plans and, although not solely related to business, estate plans.
Because these references are often used interchangeably without distinguishing one from the other, I thought that it might be helpful to define the distinctions, so that the references are appropriate for the topic being addressed. The definitions used to describe these plans are not intended to be comprehensive but expressions of the practical scope of each.
Business Plan: This is the plan with which most business owners/managers are familiar. It is the plan around which the business builds its budget, and drives the action steps and strategy in developing and growing the business.
Succession Plan: This plan is often used to transition the ownership of a company to a third-party. Succession plans are most frequently used in connection with transfers to the next family generation. They also may be used to transition the management from one leader and/or team to another leader and/or team. Especially in the context of family owned businesses, it is not uncommon to hear such a reference when addressing the transition of both the ownership and management of the company, as if they were one and the same. Usually, in very large privately held businesses and in public companies, succession plans refer to the transition of the leadership team, and not necessarily the ownership interest.
Development Plan: The reference to a development plan is commonly confused with exit planning. Strictly speaking, a development plan is (or should be) part of the exit plan. It’s a phase within the exit plan, and not the end-plan in and of itself.
Exit Plan: This is the plan now being frequently talked about. As baby boomers reach retirement age, there are more advisors who focus their consultative services and advice on exit plans. As the name suggests, it is the plan by which the owner will transition his ownership interest, and in privately held companies, his leadership role. It addresses all the other plans so that each of them supports the exit plan. More business owners and their advisors now understand that these plans should be in place at least 3-5 years before the plan becomes fully effective. During that period, the owners and their advisors are implementing different phases of the plan so that within the predetermined time frame for exiting, all the pieces have been put in place.
The purpose behind any plan is to realize the result that is the basis of the plan. This is true of exit plans, as well. The end result is to provide owners with a liquidity event that assures them of the amount of money that they need to retire in the lifestyle that they have become accustomed.
Although each of these plans represent distinct phases within a business’ development and the owner’s life, they are interdependent upon one another and should at all times be complimentary to each other. They are the parts of a larger whole, and when appropriately created and used, together they are greater than the sum of the various parts.
Estate Plan: This is the plan most people are familiar with since it involves creating a legacy plan for their heirs. Simply put, this is the plan where they leave their personal assets of all kinds and from all sources to their chosen beneficiaries.
So what does estate planning have to with the other business plans?
All of these plans are interdependent upon one another and should integrate seamlessly to form a person’s Life Plan.
One final point, as with all good plans, each of these must reflect changes that occur within the environment that they address and, in turn, the impact on one plan must necessarily integrate with the other plans. They are Living Documents.