by Ty Kiisel
Q&A with Barbara Corcoran
Photo by OnDeck
Unlike an employee facing retirement or looking for a new job, it’s a little more complicated for small business owners at the end of their careers or looking for an exit from their businesses. Do you sell the business? Do you groom the next generation to take over? And, if you have a partner who might not be ready to exit the business, what do you do?
Debbie, via BusinessKnowHow.com, asked this question in a recent Q&A with Entrepreneur and Shark Tank Judge Barbara Corcoran. “How do you deal with exiting your business when you have a business partner who isn’t ready?”
Timing an exit, or succession planning, isn’t something a lot of small business owners think about when they’re starting their business; but maybe they should. Many tech founders start a new business with a defined exit plan—maybe more traditional business owners should consider when and how they plan to exit the business upon retirement or other milestone. Here’s Barbara’s answer:
“The best way to address this issue is to get out ahead of it by having an honest conversation with your partner at the beginning of your venture. If you both understand the vision each of you have for the business, including the exit strategy you each envision down the road, you’ll know upfront if you don’t share the same vision and can put terms in place in the partnership agreement outlining how to deal with such disagreements. You many even learn EARLY you aren’t fit to be partners at all!
“But if YOU DIDN’T DO THAT at the start of the business, it’s never too late to have an honest discussion LATER ON. Simply sit down and state your feelings honestly and ask for their help in brainstorming potential solutions. But don’t do it on the fly amidst the day-to-day workload. Put the time aside in advance and get out of the office to a quiet space with ample time set aside to have a thoughtful conversation. Last, don’t expect to find a resolution in the first meeting, but make an appointment to resume the conversation a few weeks later.”
Photo by OnDeck
Having worked with a partner or two over the years, I think Barbara’s advice about exit planning in the early stages of the partnership is good advice. Advance planning for significant events like the exit of a partner are very important when the potential business impact can add a new level of stress to an existing business, so accommodating for that in your partnership agreement is a good idea. Nevertheless, if you didn’t I don’t think you’re a long. I have to admit, my partners and I didn’t do that, but in hindsight, I think we should have.
If you didn’t make those plans when you established the partnership, it doesn’t mean a smooth exit isn’t still possible. In fact, the exit of a partner may even be embraced as a positive opportunity for the business—provided your not anticipating starting a new business to compete.
I’m not an attorney, so this shouldn’t be considered legal advice. But I’ve had an experience or two forming and exiting from partnerships. When you sit down with your other partner or partners to talk about your desired exit, I’d suggest you consider the following couple of things as you negotiate how and when you will leave the partnership:
What is the potential impact to the business?
Let’s assume the parting of the ways is friendly and isn’t the result of a dispute. From the tone of Debbie’s question, I’m assuming that’s the case.
Depending upon the size of your business and your role within the business, your exit could leave a big hole. Before you sit down to discuss your exit, give some thought to suggestions you can make to mitigate the impact for your partner(s). It could be as simple as offering to train someone to take over for you. You might even have a suggestion or two for who would be a good fit. If the right person isn’t currently part of your company, you might offer to be part of the talent search to find the perfect replacement.
What will the financial ramifications be?
This is a topic where you’ll likely want some professional advice to help you navigate. You will likely want to consider the continued financial health of the business upon your exit, so depending on the circumstances; you might consider a one-time buy out of the partnership or payments at regular intervals. Your attorney will help you and your partner negotiate the terms of your exit. Nevertheless, you will likely want to consider the ability of the business to support your needs. It probably doesn’t make sense to demand so much that it forces your partner(s) out of business.
Exit or succession planning is an important part of running a small business. This is true regardless of the nature of your business or whether or not you have partners. If you don’t plan on exiting the business until your ready to retire, it can still be a challenge toward the end of your career if you haven’t thought ahead about how and when you would like to walk away. In other words, I don’t think it’s too early to start thinking about what you would like to see happen and work toward your end goal.
Ty Kiisel is a Main Street business evangelist and author, with 30+ years in the trenches. Ty makes the maze of small business and small business finance accessible within a regular discussion of this regular challenge for small businesses for OnDeck.