Business Exit Planning for Partners and Co-Owners

Business exit planning is the process of preparing for the day an owner steps away from a company. For partners and co-owners, that usually means deciding how one owner's share, or the whole business, will move to someone else in a way that is workable for everyone.

With several owners, each person may have different goals, timelines and financial needs. One partner may want to retire soon. Another may want to keep building. A third may care most about protecting the team. Exit planning gives these differences a place to be discussed openly.

A buyout structure is the framework that spells out who buys, who sells, how value is determined, how payment is arranged and what happens to roles and responsibilities afterward. Many owners also review existing agreements between partners, since those documents often shape what is possible.

Co-owners have often relied on written agreements between partners that describe what happens when someone leaves, retires, becomes disabled or passes away. These agreements may set out how a departing owner's interest is handled and who has the right to buy it.

Common paths include a buyout by the remaining partners, a management buyout by a group of senior employees, an employee stock ownership plan (ESOP), a sale to an outside strategic buyer, a sale to a private equity firm, or a transition to the next generation of a family. Each path works differently and suits different situations.

Valuation and payment terms are usually central to the conversation. Owners have traditionally looked at factors such as earnings quality, customer concentration, the strength of the management team and how dependent the business is on any one person. Payment may be arranged in several ways, and each can affect the buyer, the seller and the business differently. Attorneys, CPAs and financial advisors typically review the details.

The right exit advisor may help partners see the whole picture before positions harden. That can include clarifying each owner's goals, mapping out the options and explaining in general terms how different deal structures tend to work. An advisor who is not on one partner's side may also help keep the conversation constructive.

A first visit is often a conversation about the business, the owners and what each person hopes for after the transition. You might be asked about ownership percentages, existing agreements, key people and timing preferences. Advisors in areas such as ESOP and management buyout advisory, deal structure advisory, and tax planning coordination around a sale may each look at a different part of the picture.

Helpful questions to ask include: Have you worked with businesses owned by several partners? How do you approach fairness when owners want different things? How do you work alongside our attorney and CPA? How are you compensated? What would you need from us first? Remember that directory advisors are independent and responsible for their own licensing, so it is wise to confirm credentials yourself.