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The Importance Of The Exit Clause (Especially When You Are A Small Business Owner)

Author: Sean D'Souza

The Importance of The Exit Clause in Business

Imagine you've stepped into a cinema.
And the lights go dark.
So dark that it's hard focusing on your hand in front of you.

And then you see it.

So what do you see?

Yup, it's the ‘Exit Signs'. They glow in the dark.

Isn't that ironic? You've barely entered, and what you're seeing are ‘Exit Signs.'

And that's precisely what you need, the moment you enter into an agreement with someone.

Someone like a strategic alliance

Or someone who's going to be doing a joint venture with you.
Or someone who you're about to hire. No matter if that person is a friend, or a relative, or even your mama.

What you need is an ‘Exit Clause.' That's nicely wrapped up in an agreement of sorts.

And yet, people hate agreements

When you bring up the word ‘agreement', they start to disagree. ‘I trust you,' they'll say. ‘Why do we need all this paperwork?', they'll say. And you'll start to buckle down.

You'll shrug. Probably thinking they're right.

And they're wrong.

I know this because I've been there before

We were doing a workshop with some partners. We shook hands on our agreement. We were sensible adults. We had a plan, right? But that's not the way it works.

Murphy's Law kicks in, and when ol' Murphy comes-a-kickin, there's a lot of ‘you said this', and ‘I said that.'

And guess what? We shook hands, didn't we?

Well, that handshake wasn't worth much when the crap hit the fan. Which is why you want to have an exit clause in place.

So what does the exit clause do?

The Exit clause forces you to work out:

1) What needs to be done.
2) The date/time by which it needs to be done.
3) The responsibility of both parties involved (and who's doing what).
4) What happens if you miss a deadline.
5) How do you get out of the agreement/contract?
6) Penalties, if any.

Factor 1: What needs to be done

You may want to skimp a bit on the details of exactly what needs to be done, but believe me, it's not a good idea at all.

It's only when you sit down to write an agreement, that you are able to map your way into the nitty-gritty of what needs to be done. A project will often be looked at from a ‘bird's eye-view', but at ‘ground level,' there are squillions of things that need to be done.

Mapping out what needs to be done, gives you that intricate detail. And in turn gives you the chance to create a reasonable time-frame.

Factor 2: The date/time by which it needs to be done

The deadline of each deliverable is important, because otherwise the entire project goes haywire. And this is when all the grumbling begins. Of course, this grumble soon takes the escalator to a ‘rumble.' And before you know it, there's anger on both sides.

Deadlines that fall by the wayside are an early-warning system. If both parties, don't stick to a deadline, then it's better to pull back and analyse why things aren't moving the way they should.

Factor 3: The responsibilities

Once you've got what needs to be done, assigning responsibility is critical. Often, assigning the responsibility to individuals may not be possible, and rarely practical. It's better to have one point of contact than many.

This single point of contact is more important than you think.

If you're chasing after even two-three people in the other organisation, then you're getting yourself a full-time job. One point of contact avoids the nuisance-factor completely.

Factor 4: What happens if you miss a deadline

Some people may say: What's the problem with missing a deadline here or there?

I disagree.

The deadlines snowball. And believe me, I've been in that avalanche. And there's no turning back. You have to decide in advance, how many missed deadlines are acceptable.

A missed deadline can be a missed opportunity. And more importantly, it can put all your plans out of whack. Missing deadlines on a continuous basis are like planes circling over the airport. You wait too long, and bad things start to happen.

Deadlines are really your early-warning system. You want to specify how many missed deadlines are acceptable, before you start to reach for the exit clause.

Factor 5: How do you get out of the agreement?

So things have gone wrong. Do you know how to get out of the joint venture? Is there a 15-day notice? A 30-day notice? A 48-hour notice? How fast can you get out, and what are the reasons to bail? (e.g. three missed deadlines and you give a 48-hour notice).

Factor 6: Penalties

Ah, the lawyer-zone. It depends on whether you want to implement penalties or not. It depends completely on your organisation, and how much you stand to lose.

However, if you've got a small joint venture going on, it's best to simply go your separate ways. But hey, this ‘going your separate ways' needs to be put in the agreement.

The last thing you want is for the other party to sue. The last thing you want to do is take your eyes off your business.

You got into this joint venture to increase profits and customers. Not to get stuck in some fist-fight.

Putting together this simple document may take you an hour or two

But it will save you dozens of hours of arguing, and also a potential legal wrangle.

So if you're getting into an alliance make sure you have the paperwork. And that way you know exactly where to find the Exit.

Even when the lights go dark.

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