In the ecosystem of private business ownership, professional advisors often encourage exit planning, but few business owners adopt it.  Moreover, fewer small to medium businesses (less than $100M in revenue) learn from strategic business planning at mature enterprises.  Why?  Does strategic planning not apply to small business owners?  What is the difference between exit planning and strategic planning?

I left a 20+ year corporate executive career to pursue entrepreneurship with a goal of engaging local communities.   With a brief discovery, I found my business strategy, M&A, and management experience have equipped me to be an expert advisor for local business owners.

Recently, I received the CEPA (Certified Exit Planning Advisor) designation through the Exit Planning Institute (EPI). The EPI aims to help privately held business owners achieve maximum business value through systematic exit planning activities.  My learning helped me recognize similarities and differences between proper exit planning and strategic planning.  This article discusses how they are similar, and why it is important for business owners to work with experienced advisors on the topic.

About the author

David Qu is a mergers and acquisitions expert and a strategic advisor with broad practical business experience in various industries, markets, and business functions. He gained expertise from decades of hands-on operational training, management consulting, and senior corporate M&A executive roles with well-known global companies. As a trusted partner and expert advisor to his clients, he brings strategic insights, practical expertise, business management know-how, and execution blueprints to help you maximize the value from the sale of your business. Contact us to learn more.

What are strategic and exit planning?

What is Strategic Planning?

According to The Hartford, “Strategic planning is the process of documenting and establishing the direction of your (small) business—by assessing both where you are and where you’re going. A company’s strategic plan consists of its: Mission, Vision, Values, Long-term goals, and Action plans.  A well-written strategic business plan can play a pivotal role in a business’s growth and success because it tells you and your employees how best to respond to opportunities and challenges.”

The Harvard Business Review defines strategic planning as “the ongoing organizational process of using available knowledge to document a business’s intended direction. This process is used to prioritize efforts, effectively allocate resources, align shareholders and employees on the organization’s goals, and ensure those goals are backed by data and sound reasoning.”

In both definitions, strategic planning covers a vast range of activities, and the amount of effort required to complete it cannot be underestimated..

Why do businesses conduct strategic planning?

I have spent over a decade working with global companies with $1 billion to $40+ billion in sales creating business strategies and leading the strategic planning team and process.  Regardless of company size, strategic planning serves as a platform to bring executives together regularly to review market facts, communicate among leaders, set future goals, and debate tradeoffs in making investment decisions with limited resources.  This is typically an annual process and is reviewed quarterly.

Strategic Planning is THE foundation for enterprise planning, goal setting, performance management, investor expectation management, and value creation.  Through this process, data are laid out after careful research, multiple rounds of discussions take place among management teams and executive teams, ideas are discussed and vetted, and investment tradeoffs are made based on the optimal return on investment against risks.  Therefore, strategic planning has become a critical success factor for many large enterprises and can be a competitive advantage, when completed better than competitors.

What is exit planning?

The small business service industry is fragmented. There are different definitions of exit planning.  Not all are correct or complete.  Two good resources I found are: 

The U.S. Chamber of Commerce states “an exit planning is often thought of as the way to end a business — which it can be — but in best practice, it’s a plan that moves a business toward long-term goals and allows a smooth transition to a new phase, whether that involves re-imagining business direction or leadership, keeping financially sustainable or pivoting for challenges.”

The Exit Planning Institute (EPI), a leading authority in the industry, states that “exit planning combines the plan, concept, effort, and process into a clear, simple strategy to build a business that is transferable through strong human, structural, customer, and social capital. The future of you (business owners), your family, and your business are addressed by exit planning through creating value today.”

In both cases, the definitions do not specify an event or a timeframe.  Instead, both emphasize smooth transitions for long-term success while creating value within the business today. It’s important to note EPI’s definition also addresses the future of the business owner and their families in addition the the business itself. We will briefly cover that at the end of this article.

A well done exit plan asks and answers all the business, personal, financial, legal and tax questions involved in transitioning a privately owned business. It includes contingencies for illness, burnout, divorce, death. Its purpose is to maximize the value of the business at the time of exit, minimize taxes, and ensure the owner is able to accomplish all his or her personal and financial goals in the process.

Why do businesses perform exit planning?

The biggest strengths of small businesses are agility and execution.  Many successful business owners are entrenched in the markets they compete with and know intuitively what it takes to succeed.  Given their expertise, the biggest success factor is one’s ability to execute.  When they fail, these business owners quickly adjust their approach and try again until they succeed.  Their flexibility and speed give them the agility to adapt and win. 

However, as businesses mature, teams grow, geography expands, and product complexity increases, creating repeatable processes becomes critical for business owners to build human, customer, social and structural capitals that retain knowledge and build value.  This is when business owners need to start “working on” the business instead of “working in” the business.  Visioning, planning, goal setting, performance management, communication, team building, and alignment become critical factors in a company’s long-term success.  Executing these tasks with value creation and exit options in mind for shareholders (often business owners themselves) is why small business owners should perform exit planning.  This entire effort is often a simplified version of enterprise business planning process. 

In addition to business planning, small business owners often need to plan for personal and financial aspects of their lives as they are often entangled within businesses.  Having a clear separation of personal vision and family financial goals from business plans is a critical element of exit planning.

When done correctly, exit planning addresses the future of business owners, their families, and their businesses through creating value on daily basis. 

How are strategic and exit planning similar?

I have led many cycles of strategic planning for multi-billion publicly traded global enterprises, where I formulated strategic growth initiatives, facilitated executive discussions, and fought for millions in investment dollars at multiple organizational levels.  These efforts undoubtedly have created a lot of value for our shareholders.  Now as a Certified Exit Planning Advisor (CEPA) for privately held enterprises, I find the process and end goal to be very similar, specifically in these areas:

1. Shareholder Value Creation in Mind

Large corporations focus on year-over-year growth of top-line and bottom-line that translates to consistent growth in earnings per share (EPS). For privately held enterprises, owners also focus on consistent growth that expands business value at the time of sale, whether it’s in a year or five years, progress can be measured at any time.  The resulting value often represents 80% – 90% of the owner’s wealth.

2. Long-term focus drives Near-term Efforts

Both efforts translate long-term goals into near-term initiatives or projects.  This sounds simple but is difficult to do.  It requires expertise in breaking down long-term visions into milestones, projects, and tasks, where progress can be easily measured and tracked.  Many plans fail because they lack the details to be actionable.

3. A Focus on relentless execution

“Most people think of strategy as an event, but that’s not the way the world works,” Harvard Business School Professor Clayton Christensen says. “When we run into unanticipated opportunities and threats, we have to respond. Sometimes we respond successfully; sometimes we don’t. But most strategies develop through this process. More often than not, the strategy that leads to success emerges through a process that’s at work 24/7 in almost every industry.” 

Just as the creation of a strategic plan is an ongoing process, execution is continuous improvement process as well.  The success of both relies on relentless execution and continued learning.

4. Promotes strategic choices and healthy trade-offs

Strategy is about making choices with limited resources. Every person and organization’s resources are finite. Both exit planning and strategic planning helps business owners facilitate the process of making strategic choices where owners make trade-offs to optimize return on investment (time, money, and resources).

5. Enhance team communication and alignment

Both exit planning and strategic planning promote open dialogs and transparent communication, which enhance team alignment in the process. When done right in a trusting organizational culture, for large or small companies, results can be powerful.

How is strategic and exit planning different?

A good exit plan includes a forward-thinking personal and financial plan for business owners themselves. Strategic planning for enterprises only focuses on the enterprise itself with the goal of maximizing shareholders’ earnings. However, the scope of a good exit plan includes a business plan, the owner’s personal plan (life after business ownership), and the owner’s financial plan (pre-tax and after-tax personal and estate planning). This is an important distinction for business owners who desire to achieve personal, physical, and financial freedom. To learn more, schedule a free consultation using the button at top of this page.

Benefits of exit planning

The right exit plan focuses on measurable value creation for business owners by driving the completion of actionable tasks today.  As described above, this is no different from public companies using strategic planning to drive shareholder value creation in terms of Earnings per Share.  Some benefits of having an exit plan as a strategic plan include:

• Creating one, forward-focused vision
• Drawing attention to biases and flaws in reasoning
• Making business decisions with direction
• Tracking progress based on strategic goals
• Remaining committed to the value of your business
• Seeing through business — and personal — goals after exit
• Facilitating a smooth transition

Read here for more information on these topics:

• https://www.uschamber.com/co/start/strategy/business-exit-plan#:~:text=An%20exit%20strategy%20is%20often,leadership%2C%20keeping%20financially%20sustainable%20or
• https://online.hbs.edu/blog/post/why-is-strategic-planning-important

About Rimonark Advisors

Rimonark Advisors is a client-centric mergers and acquisition advisory firm based in Cincinnati, Ohio. We help clients maximize wealth through business growth advisory, business sale preparation (exit planning), and business sale transaction services. We are here to help our clients get ready for a successful business sale, get the most value, and achieve fruitful confident transitions for themselves, their families and their stakeholders. Ultimately, we help clients harvest years of hard work by unleashing business cash flows and converting them into generational wealth. Contact us to learn more.