Establishing an Exit Plan

One of the first things we advise students to do when establishing an entrepreneurial partnership with others is to write out a clear (and signed) exit plan. Establishing an exit plan at the beginning of the process, while people are still friends, still in the “honeymoon phase” and while there is no bad blood to speak of, is a good way to make sure that all parties’ needs are met in the event of a “breakup” or a parting of ways.

People may leave a company for any number of reasons. Sometimes partners become pregnant and decide to leave to devote energy to their family. They may part to do other things (other jobs). Perhaps they become burned out, decide to sell their equity in the company or leave because of developing disfunction. It is rare that founders of an organization stay together indefinitely and having a clearly written exit plan or a document/contract that articulates what to do in the event of a breakup, can ease tensions and may protect founding parties from potential lawsuits and bad blood.

Contracts serve as a roadmap of sorts in the event of something going wrong and serve to manage the relationship. Exit plans help mange expectations and prevent negative situations from arising. Should one founder want to sell their shares to another, for example, an exit plan can clearly articulate how this is to be done, so that other founders do not end up working with someone they do not wish to work with.

Speaking about how to exit at the beginning of a business relationship may seem like a negative thing to do and a difficult conversation to have, but can save a lot of grief in the long run.

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