Manage and Minimize Risk

That’s the Basic Mission When Weighing Business Exit Strategies

When starting a business venture, owners of a closely held business entity (i.e., shareholders, partners, members, etc.) do not usually think about what will need to occur when dissolving the business, or when one owner decides (or is forced) to step away from the business.
But if not properly planned for, sudden changes like these may put the business at risk or threaten the value of the owners’ interests in the entity. As you think about planning for inevitable changes in ownership, here are some things to keep in mind.

Control Your Emotions
Many small-business owners find the thought of no longer owning, operating, or being a part of their business hard to comprehend. Requiring an inordinate amount of time, commitment, and personal attention, a small business can envelop the identity of its owners, and thinking about losing that identity can be difficult.
Sometimes, when owners work closely together on their business, grievances or complaints can arise, making it even more difficult to think about fairly splitting up their interest in the business. Nonetheless, it’s important to put these emotions aside so that you and your co-owners can be clear about what each of you expect if you were to leave, involuntarily or not.

Start a Discussion Now
The dissolution of a business can be a potentially emotional time, which is a good reason to have this discussion now. Another good reason is that an owner could become disabled or otherwise unable to continue work at any time. Making these decisions when there is no crisis, and there are no immediate consequences to each choice, allows the parties to look at the business — and its operation, management, assets, and liabilities — dispassionately.
This will make it easier for each owner to evaluate and discuss his or her needs, or to agree on the value of (or method of valuing) business assets, in case their situation changes and dissolution becomes necessary.

Discuss Your Plan with Advisors
After you have an initial discussion with your co-owners, contact your business advisors, including your accountant, insurance agent, and attorney, so they can help you find the most effective way to reach your goals.
You may need to determine the valuation of business assets, put in place insurance or disability policies to help fund the planned actions, or draft buy-back or buy-sell agreements to ensure that the business interest can be transferred with a minimum of disturbance.

Put Your Agreement Into Writing
Once you have settled on a plan for dissolution, have it written up by your attorney and incorporated within your business records. This will ensure that the plan is accessible and clear whenever it may be needed. Intend to review the plan every three to five years to ensure that it continues to reflect the needs of the business and each owner.

Michael S. Gove is an attorney with Cooley, Shrair P.C. focusing his practice on assisting clients in the areas of corporate/business, banking, and bankruptcy law; (413) 735-8037; [email protected]