Planning an Exit Strategy

Whether your business is a lifetime endeavor or you're a serial entrepreneur, having an exit strategy is important; if you're 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. So 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' shared sense of how their alliance, as well as their business, will end.

Preparing an exit strategy before it's needed lets you and your partner make crucial decisions while you're calm and clear. It should be included in your business plan and partnership agreement. But creating one is an often-neglected and avoided task. And women entrepreneurs, who are frequently uncomfortable creating discord, are especially likely to avoid the subject, since it 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, they 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. They had to decide if they should 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, business alliances won't.

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, 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 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:

• What are your objectives for the business?
• 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 should periodically revisit and revise your plan.