When The Party’s Over: Talking to Your Business Partner About Exit Strategies

© 2023 Elinor Robin, PhD

How and when will you move on from your business?

Your business may be a lifetime endeavor or a link in the chain of a serial entrepreneurship. Either way, having an exit strategy is essential. 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 unforeseen, negative consequences.

Are you ready to talk to your partner about putting an exit strategy in place?

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’ agreement as to how their alliance, as well as the business, will end. The partners’ ability to have this dialogue speaks to their openness, honesty, and capacity to see into and prepare for the future.

Preparing an exit strategy before it is needed can give you and your partner an opportunity to make crucial decisions while you are calm and clear. You should include an exit strategy as the endpoint in your business plan and partnership agreement. But it’s no surprise if you don’t have one yet. Creating one is often a neglected or avoided task. And, women entrepreneurs, who are frequently uncomfortable with creating discord, are especially likely to avoid the subject, which can be perceived as negative or suggesting a lack of trust.

Recently, I worked with the co-owners of a local physical therapy facility. The women, Victoria and Wanda, share a close and long-term relationship. When we met Victoria and Wanda were facing a crisis prompted by Victoria’s husband’s transfer to another state. The potential end to their partnership triggered uneasy feelings for them both. Wanda described feelings of abandonment and devastation connected to the thought of running the business without Victoria. Would it be best to dissolve the business, have Wanda bring in another partner, or have Wanda go it alone? Without an exit strategy in place, both women were faced with making crucial decisions and negotiating finances at a time when they were least levelheaded. Their story serves as a reminder that while personal relationships may last indefinitely, chances are that business alliances will not.

For Victoria and Wanda, the first step in planning an exit strategy was assembling a team of experienced advisors. Depending on your situation, your team might include a mediator (like me), a business advisor, an accountant or CPA, an investment banker, a financial advisor, insurance professionals, a tax attorney, a business attorney, an estate attorney, an estate planner, and/or a business broker. Your team members should be able to consider and understand your individual challenges and resources as well as those of the business.

By considering and discussing the following set of questions you and your partner will be able to make some important decisions and tailor your exit strategy to your individual needs.

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1. What are your objectives for the business?

2. What time frames are involved? How much longer do you anticipate that you will want to work in this business?

3. 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?

4. How will your business be valued in the end? You might use a pre-determined pricing formula, an appraiser, or some other method.

5. 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?

6. What post-alliance ties and restrictions, such as non-compete clauses belong in the agreement?

7. Do you have a strong management team in place? If not, who will stay on after you leave the business?

Women are continuing to start new businesses in record numbers. And many are finding partnership a comfortable business format. In order to best face the events that might influence our departures from our businesses we need to make sure that we are prepared to make graceful exits. It’s never too early to agree upon and create your exit strategy, just keep in mind that as the business grows and changes you may benefit from periodic revisiting, re-envisioning, and revising your plan.