Come hear Paula and a panel of experts on Protecting your Legacy from the Four D’s on October 23 for more on coordinated crisis planning.
As consultants, we have the opportunity to work with countless business owners who are extraordinarily successful in running growing, profitable businesses. However, these same business owners who often fall into a dangerous trap. They do not see the need to plan for the day when everything may not be so rosy. They may be in business with family members or with trusted partners. Often they have misplaced confidence in future smoothness and assume that no disagreements will arise in times of trouble.
Why incur the expense and devote precious time to something that most likely won’t be necessary? The trap is that without planning and a formal buy-sell agreement, even the most accomplished business owner can wind up unprotected and unprepared at a very vulnerable time.
Life events happen to everyone. Death, retirement, divorce, disability or a dispute with a business partner occur all the time. And, they can bring about adverse consequences in any business. To complicate matters, these are the events in our lives that are filled with emotion. As we know, once emotions are involved, people often react unnaturally. As a result, emotions can get in the way of effectively and equitably resolving business issues and making good decisions. Consequently, why not implement a “plan” to deal with these issues well before they arise?
The plan is a well-developed buy-sell agreement. First of all, it provides peace of mind to the business owner, shareholders, and the key management team. A buy-sell agreement provides key individuals with the knowledge that a vehicle exists to ensure that when life events occur, the business will continue without emotional interruptions. In addition, the agreement functions as a “game plan”. Most of all, with such a plan, the owner, the shareholders, and management team all understand exactly what will occur under different scenarios.
Why spend valuable resources to develop a buy-sell agreement? We think that there are at least four compelling reasons.
1. The Owner. A buy-sell agreement integrates the needs and capabilities of the business with the owner’s personal, business, and estate plans, especially with regard to liquidity needs and vision as to the future control and ownership of the businesses.
2. The Shareholders. A buy-sell agreement establishes the value of a shareholder’s stock in conjunction with various trigger events such as, for gift, estate, and generation-skipping tax purposes. A buy-sell agreement can be structured to help minimize taxes and preserve the shareholder’s wealth.
3. The Family. A buy-sell agreement addresses business succession issues. In addition, it provides a road-map for dealing with disputes that can easily evolve into lengthy litigation, drained financial resources, and the breakup of the business and family.
4. Key Management. A buy-sell agreement ensures business continuity amidst life’s storms. The agreement can eliminate uncertainty and emotional unrest for management and allow the team to carry on.