Business Partnerships & Exit Strategies

Business Partnerships & Exit Strategies

Business partnerships can seem perfect at the get-go. But, what happens when someone wants to get out?

One key topic I often advise on is having an exit strategy. When people go into business together it is almost always a peachy-keen-rose-colored-glasses atmosphere. Things are positive and forward looking.

Partnership dynamics change when the nitty-gritty issues start rolling in. Most disputes arise because of a failure of expectations. One party had an expectation that the business was going to do X and the other party had an expectation that the business was going to do Y. Those two expectations are not the same, even if the business is treading water or going slowly. If the parties are not on the same page with their expectations, then somebody’s, if not everyone’s, expectations will not be met. This leads to dissension between the partners. Dissension leads to disputes. Disputes lead to business divorce or business death.

So before opening up the business to customers, partners need to think about:

  • When you have no product or service to sell, you have no client base, or you cannot generate the kind of business you need to sustain the company, what will you do?
  • What is the worst case scenario for the business?
  • What will be our exit strategies in that scenario?

You should also consider scenarios that are in a middle range. Things are going along, but they are not great. What will you do then?

So, you have thought about what happens if things go bad and if expectations are not being met. But what if everything goes great? Business partners need to consider:

  • What if the business is doing fantastic and part of your exit strategy is to be acquired by another business?
  • At what point does that acquisition become automatic?
  • What if, however, one person wants to continue operating the business and one person wants to get out?
  • What if one of the partners decides to make a big move? What happens then?

Consideration of what is going to happen at the end of the business is something that needs to be thought of before you begin the business.

In the meantime, before you go into business think. Think long and hard. It is wise to hire legal counsel to make some of these decisions concrete. We’re here anytime you need us.