It’s fair to say that there is a lot more advice available on when to start your own business, compared to when it’s time to leave.  In fact there are over 7 billion Google search results for the query “when should I start my own business”, versus only half as many for the query “when should I leave my own business”.

Of course many business founders don’t have much choice about when to leave, especially when business conditions are comparatively tough and failure rates are high.  But where does that leave the rest of us – how do we know when to leave, when our businesses might even be thriving?  Equally important, just how are we going to plan our exits?

Its arguably even harder to make that decision when you have business partners, who may have very different personal situations, and may even see your shared business quite differently.  Even starting a conversation with a business partner about exiting can be tricky, for many of us.  Some businesses might not even survive the departure of a founder.  And its usually even trickier when the founders are friends – or members of the same family.

In our experience, its probably safest if business founders have a good plan for how they will manage their exits, as both business owners and leaders.  Here are our tips on what can be done to manage the risks, and even capitalise on the opportunities that might come from a change in business owners:

Questions to Ask at Start Up

If you are the sole founder of your business, think about – and document – the following critical exit-related questions:

• Why am I starting this business?  This is your purpose – if you are clear on that, you can be clearer that when that purpose has receded, its time to exit.  When the passion is gone, owning your own business might be much harder work than having a regular job, given all the compliance requirements you are probably dealing with.

• What am I prepared to invest in this business?  If the business requires more time or money from you than you are prepared to commit, it may be time to exit (or make other strategy changes, perhaps).

• What do I want to get out of this business, that I can’t get elsewhere?  Once you have earned what you need from being a business owner, in terms of both financial and personal rewards, maybe its time to move on.

• What might need to happen to the business, after I exit?  Should it be passed on to a family member, or sold to an employee or some other potential buyer?

• How might I be feeling, when its approaching the right time to go?  Sometimes, “trained instincts” can actually help clarify our rational thinking, when faced with important dilemmas with inherently emotional dimensions.

All of the above will apply where you also have a business partner, but there are some extra considerations:

• How might my answers to those questions compare to my business partner’s answers?  You are each unique, and are highly unlikely to have exactly the same views!

• How do we capture those differences, and explore their implications for our business partnership?

• What practical steps might we need to take to trigger and execute the successful exit of a business partner, so that everyone gets what they need?

• What might happen to the business itself as a consequence of a partner’s exit?

• How might your partner feel about the prospect of losing you from the business?  They might be looking forward to “going it alone” – or perhaps they may be worried.

At the Advisory Collective we made a conscious choice when we started our business back in 2019 to not only plan our start up, but also plan (as far as we could at that time) for the inevitable exit of one or both of our founders.  Looking back five years later, we are pretty happy that we asked the right questions early, and knew what to look for as our business grew and matured.  For example:

• We recognised that there was an 11 year age gap between us – I was always inherently likely to wish to scale back my working hours and eventually retire well before Tim.

• Tim had some other business concepts that he wanted to explore that might be a natural fit for the Advisory Collective one day, but were not in areas where I could obviously contribute, and weren’t an immediate priority.

• On the other hand, I brought a relatively rare combination of skills and experience, so Tim would need to source at least some of those from other sources if I exited the business before him.

Partnership and Shareholders Agreements

If you have a business partner – whether your business is legally constituted as a partnership, joint venture or a company – it is always prudent to capture your shared understanding of how the business will be governed in a formal agreement.

So once you have explored the various potential founder exit issues with your business partner, make sure that any solutions or rules that you want to put in place are documented in that agreement, eg rules on how:

• Shares might be offered for sale internally or externally, and how they might be valued.  So a good agreement will usually include so-called “pre-emptive rights”.

• The business will be managed if partners have different shareholding levels.  For example, if a partner sells down their shares to a small percentage, should they also remain a director of a company?

• Owners might be rewarded for the services, as well as on their contributed capital.  What happens if a partner reduces their shareholdings but still wants to work full time in the business, when the primary way of distributing earnings has been via dividends?

• Disputes between business partners might be prevented, minimised or solved.  Marriage counseling is usually preferable to a messy divorce.

There are plenty of other good reasons why partnership and shareholder agreements are an important investment, so make sure that you have the right expert advice to help you with that process.

Check in With Yourself – and Check in With Your Partners & Family

Make sure that you re-examine each of your “critical business exit questions” at least once each year.  See how your answers might be changing over time.  Be honest with yourself – the world will change in many ways around you, but you will be changing as a person at the same time.

When you have a business partner, make sure that you are communicating well with each other, on strategic matters like these:

• Ask active questions.  Don’t assume that their own thinking or circumstances haven’t changed.  Ask questions, and be respectful of what they choose to share.

• They may have already noticed that you might be having different thoughts and feelings about the business.  They probably spend a lot of time with you, and may know you nearly as much as your closest friends and family.

• Remember that mutual trust and respect are absolutely essential where a business partnership is concerned – if there is a breakdown in communications regarding the future of a business relationship, it is very hard to maintain that trust and respect.

Even when you don’t have a business partner, its highly likely that your evolving thoughts and intentions will affect others, most obviously your family – so communicate well with them too.  If you are an older business owner – and many small business owners in Australia are comparatively older – they will probably be wondering when you plan to exit, and how that will affect them.

When the Time Approaches, Prepare a Business Exit Plan

If you pay attention to the critical issues, eventually it will probably become apparent that you should be actively planning for your exit:

• Where applicable, involve your business partner as early as possible in the process, if you still have the trust and respect to do so (and hopefully you do).

• If you are planning to sell out to a third party, start maximising business value as early as possible.

• If you are considering selling the business to employees, give thought to implementing an employee share scheme, perhaps operating in conjunction with a profit share scheme.

• If you might be transferring the business to a family member, make sure that the valuation and financing processes are equitable and will not cause avoidable disputes within your wider family.  It often pays to be more transparent rather than less, so that no-one can claim they have been disadvantaged.

There will probably be lots of matters to consider – here are just some:

• When and how will staff, customers and suppliers be notified?

• How will any unique skills and responsibilities be backfilled?

• When and how will delegated authorities, eg bank signatories, be changed?

• If a former business owner might still work for the business, will they remain an employee or should they become an independent contractor?

• If an exiting business owner will no longer be employed, are they entitled to termination benefits?

• If the business is being sold to a third party, might there be a handover period, perhaps aligned with an “earn out” or escrowed consideration clause in the sale agreement?

• Might a formal business valuation be required, to determine a fair price for the seller’s shares?
• If an existing business partner plans to start a new business or job, are there circumstances where it might be in competition with the existing business that might give rise to restraints on soliciting customers or staff?

• How will intellectual property contributed by an existing business owner be treated – does it all need to remain with the business?

• Has an exiting business owner provided personal guarantees or loans to the business that will need to be extinguished or settled?

A Staged Exit Minimises Risks

It will probably be apparent from the above that there may be many risks that can only be managed well if the exit process is staged over time, eg:

• An existing business partner might sell down their shareholding in stages, and also scale down their working hours over time, rather than retiring altogether from a full-time role.

• Progressively handing over duties to other owners or staff before the exit date, to allow for training and quality checks.

• Communicating key changes well in advance of any exits, so that staff, customers and suppliers are confident that the change process will be well run and their interests have been considered and protected.

Be Prepared for the Unexpected – and Open to Opportunities

While its possible that any business exit may bring unanticipated risks, if you have a good plan, enough time, the trust of your partners and the support of family and good advisors, you will probably be well placed to deal with them all.

Its also possible that the exit of a business owner can bring new opportunities.  For example:

• Continuing owners and staff may develop new skills, to replace those that will be lost.

• The business may now be free to evolve in new ways that an exiting business owner might not have been prepared to consider or invest in.

• There may be opportunities to bring in new business partners, who can bring their own strengths.

Walking Our Talk

In April 2024 the Advisory Collective celebrated its fifth anniversary, and we had lots to celebrate.

Tim and I built a terrific business that has had the privilege of working with many great clients, most of them founder operated small and medium sized businesses that really needed our 50+ years of collective experience.  We have refined our services to better meet those clients’ needs.  We have earned the rewards that we were seeking and still enjoy working together, and remain good friends – which was our plan from day one.

In July 2022 we started executing my “transition out” plan, when I sold some of my shares to Tim, and reduced my usual working hours to three days a week.  In July 2024 we move to the next stage, when I will sell my remaining shares to Tim and cease to be a Director and employee of the Advisory Collective.  I will then become a contracted member of the Collective, and remain available to our clients where my services are useful and I have the capacity and interest to contribute, while also working privately on other projects, eg my executive coaching practice.

Following my departure as an owner of the Advisory Collective, I know that it will continue to do great work, with and without me, and that Tim will take it to places that I would never have imagined, as sole owner.

Most of all, I already know that Tim and I will still be friends, I will always be proud that I was a co-founder of the Advisory Collective, and that my exit went exactly the way we planned and hoped for.