Exit Alignment: Ensuring a Smooth Business Sale with Multiple Partners
Exit planning presents a unique challenge for entrepreneurs who have one or more partners. We each have unique needs for cashflow, capital and the role we want after the business sells. The goal of successful exit planning is to ensure that every partner is clear about their needs, able to present and discuss that with their partners and is able to have their needs accounted for in the sale process.
Different visions
For a very high-level example, let us say you and three other partners have built a business worth $50 million. You personally feel like the valuation for your company is at a high point and think about being able to take on a fresh challenge with more capital available to you than when you started this company.
The problem is that each of you has a different vision about what you want to do after the business is sold. One partner wants to retire and focus on family and giving back, another wants to start a new business, and another wants to become a real estate investor. You are not totally sure about what the future holds, but you are leaning towards taking some time off and traveling before starting your next venture.
With each partner having different ideas about what they want to do after the sale, it can be difficult to arrive at an exit that feels right for everyone. Add to that the issues of the exact timing to sell, who the ideal buyer is and what the deal size and structure should look like, and there are lots of opportunities for conflict among the partners.
Disagreement areas
Valuations, priorities and timelines are areas where we typically see the most disagreement between partners:
- Each partner may have differing valuations for how much the business is worth and what a fair price would be. This can lead to disagreements about how to price the business and what kind of offer to accept.
- Each partner may have different priorities when it comes to selling the business. One partner may be more focused on maximizing the sale price, while another may be more interested in finding a buyer who will treat the employees well. These conflicting priorities can make it difficult to come to a decision that everyone is happy with.
- Each partner may have different timelines for what they want to do after the sale. One partner may be ready to retire immediately, while another wants to continue working in the business for a few more years. This can make it difficult to come to an agreement on when the sale should happen and what kind of transition period is needed.
Strategies
So how do you get ahead of these disagreements and get all the partners on the same page? Here are three strategies to start with:
- Clarify priorities. Each partner needs to be honest about their goals, priorities, and concerns. This is best done by each partner working individually to define their personal time and financial priorities before, during and after the exit event.
- Build your team. Our team at Entrepreneur Aligned can work with you on defining your personal financial priorities. Beyond that, you need your transaction team of business brokers or investment bankers, a certified public accountant with expertise on complex purchases and attorneys who practice in the business transactions area your business is in.
- Be deliberate in your approach. You do not control the deal process, but you do control your focus. Ensure that the priorities for each partner are at the center of reviewing potential deals. Be clear about what each of you needs financially, in both dollars and structure, and what each of your guardrails are for time and involvement after the sale.
Business exits for multi-partner businesses introduce some additional complexity, but with open and honest communication between the partners and the right deal team in place, you can get to an outcome that is meaningful for everyone.
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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy. Advisory services provided by Destiny Capital Corporation, a Registered Investment Adviser.
ABOUT JARROD
Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.