Business Partners' Exit Strategy Tips

Whether your business is a lifetime endeavor or you are a serial entrepreneur, having an exit strategy is important. If you are part of a business partnership or family business, having an exit strategy is critical. Without one, you may not be able to liquidate your investment or move on without major consequences. If you are ready to talk to your partner about putting an exit strategy in place here is what you need to know.

1. An exit strategy is the flexible blueprint of how and when a business will end. In
   partnerships, the plan must go a step further and address the partners' shared sense of how their alliance, as well as their business, will end.
2. Preparing an exit strategy before it's needed lets you and your partner make crucial decisions while you're calm and clear.
3. Discussing and creating an exit strategy is an often-neglected and avoided task. If you are uncomfortable creating discord you are especially likely to avoid the subject, since it can be perceived as negative or suggesting a lack of trust. But, without an exit strategy in place, you may be faced with making crucial decisions and negotiating finances at a time when you are least levelheaded.
4. Before deciding what to do, consult with professionals and experienced advisors who can consider and understand your individual challenges and resources, as well as those of the business. Depending on your situation, your team of advisors might include a mediator, a business advisor, an accountant, an investment banker, a financial advisor, an insurance professional, a tax attorney, a business attorney, an estate attorney, an estate planner, and/or a business broker.
5. In order to make important decisions and tailor your exit strategy to your individual needs ask yourself and your partner the following questions:

• What is the time frame? How much longer do you want to work in this business?
• What events might trigger an end to the partnership? This could include a natural completion point, a performance failure, a certain accomplishment, a death, or an external commercial, economic, or political event. Will different events be treated differently?
• How will your business be valued at the end? You might use a pre-determined pricing formula, an appraiser or some other method.
• What possibilities for future ownership will be acceptable?
• What kind of buy-out should you offer one another? Do you want your plan to include provisions for each of you to join forces with an outside third person? Or do you both agree that the business should be sold in a private sale? Would hiring a manager and retaining equity in the business be best? What about an employee stock ownership plan? Should you go public or gift the business to family members?
• What post-alliance ties and restrictions, such as non-compete clauses, belong in the agreement?
• Do you have a strong management team in place? If not, who will stay on after you leave the business?

It's never too early to create your exit strategy. Just keep in mind that as the business grows and changes, you may want to periodically revisit and revise your plan.

Elinor Robin, Ph.D., is a mediator, mediation trainer, and conflict management consultant specializing in small business, partnership, family, and workplace disputes. You can find her on the web at www.elinorrobin.com.