Business owners commonly associate exit planning with estate planning, and they aren’t too far off.

Good exit plans and estate plans both aim to ensure that the owner’s family is provided for after the owner is gone. Both an exit plan and an estate plan might address a transfer of ownership to an intended recipient following the death of the business owner. 

But one thing that owners may overlook when committing to estate planning is the notion of transferable value. While transferring ownership can be relatively straightforward, creating transferable value so that an ownership interest carries the benefits the owner hopes for can be a greater challenge.

Transferable value is the value a company has without its owner, and it’s incredibly important to consider when we are looking at what ownership is expected to provide once it’s transferred through an exit plan or estate plan.

It’s this aspect that makes estate planning a small but significant slice of a larger planning pie.

Estate plans focus on transferring assets upon an owner’s death. They typically assume that the owner will live past his or her expected exit date and thus have the opportunity to transfer all assets as planned.

But what happens when an owner dies prematurely? What happens when the business - which is most likely the most valuable asset to be transferred - relies so heavily on the owner’s presence that its value plummets when the owner dies? How can you help your family receive real value rather than just ownership rights?

That’s where exit planning picks up the slack, because exit planning focuses on three key elements that estate plans often overlook:

• Transferable value: Exit plans include action items to help ensure that the business runs smoothly whether the owner lives, dies or becomes incapacitated.
• Financial security: Exit plans implement strategies to give owners the best shot at financial security regardless of the unexpected.
• Choice of successor: The exit planning process encourages owners to choose a successor long before the business needs that successor.