What's Your Exit Strategy?

When you begin your business, the hope is that your business will support you while you work there and well after you retire.  However, this is not always the case and many times, business relationships don’t always end successfully.  Therefore, it is proper to plan ahead.   

In planning your business exit strategy, you must look at four reasons behind the exit: death, disability, divorce, and departure.


In many cases, a small business has a small number of owners and sometimes, only one.  When the owner dies, who will receive the owner’s interest in the business?  Who will continue to manage the business?  In order to keep the business running, the answers to these questions must be included in the business plan and other business documents, signed by the owners.  Obtaining life insurance, while not necessary, is also a must.


Every group of business partners is the best of friends when creating the business but this does not always last.  If this situation occurs, what is your business plan to split the partnership up without ruining each other and a potentially very successful business?   It is best to have this agreed upon during happier times than when business partners are at each other’s necks.


You may have the feeling of invincibility, but what if you or one of the other key members of your business operations is no longer able to perform his/her duties?  Who will make up for the lost income?  Will the disabled party continue to earn a salary?  In many cases, the continuation of the business will be more important than paying the disabled partner.  These concerns are best addressed through discussions regarding the business obtaining key-person insurance as well as who or what will cover each partner’s disability insurance.  In these situations, an insurance agent will be an asset to the business.


Similar to divorce, a business partner may amicably choose to leave the business.  In this situation, the issues of who will take over the partner’s work as well as what money will be owed to the departing partner should be addressed prior to this situation occurring.  Again, addressing this issue prior to it occurring will make the partner’s departure much less financially painful for the business, allowing for a smooth transition and continued business operations.

While it may sound counterintuitive, if you want your business to be successful, you must first plan for the end of your business.  Do you have the proper documentation which sets forth your plans?  Do you have the proper insurance that will cover the business in certain cases?  All these aspects must be considered and implemented prior to the implementation of the business.  It’s best to have the right support team, including an attorney, an accountant, and an insurance agent, each of who can provide you with the proper documentation, support, and guidance to deal with the many situations that can affect your business.

It is always important to speak with an attorney located in the state where your business is located as the attorney will know the nuances of the local laws.  If your business is located in Pennsylvania, it is important you speak with a Pennsylvania attorney.