FS360 Podcast - Episode 31

22 September 2021

Buy-Sell Agreements for businesses

Danny Archer | M Group Financial Planner

Even the closest business partnership needs a buy/sell agreement in place. It can help protect everything you and your partners have built.


Businesses between friends and family can work great, but if someone dies or acquires a permanent injury, the lack of a formal agreement can lead to a painful dispute and eventual financial ruin.


If you’re a small or medium business owner and in a partnership, you may not have thought about the implications of a partner’s death or disability. After all, it’s not the happiest of subjects. Yet a little bit of forethought on how your business could keep going if this was to happen could save a lot of heartache.

A buy/sell agreement is worth the awkward conversation. A critical agreement that sets out how ownership is transferred to other business partners should tragedy strike, it ensures that beneficiaries of the deceased person’s will – usually their family – will be paid for their share of the business, saving them additional trauma at a very difficult time.

 

Surprisingly, many businesses do not have one, which can lead to all sorts of unforeseen problems. There are three main ways a buy/sell agreement can help:

 

  1. Valuation
  2. Succession
  3. Insurance

 

Three tips for a solid buy/sell agreement

 

  1. Start early and review often
    A buy/sell agreement should be put in place at the beginning or in the early stages of the business partnership, and regularly updated.

  2. Get good advice
    While a lawyer will ultimately put the document together, the complexity of the situation means it’s often best to get all your advisers across the agreement.

  3. Decide how much insurance you need
    Insurance doesn’t have to cover the entire value of the business, instead think about how much payout you need. For example, if you received a payout of two-thirds of the value of the business, would you be able to manage the rest?


Buy-Sell Agreements Flyer PDF Download (2MB)

Episode 31

Even the closest business partnership needs a buy/sell agreement in place. It can help protect everything you and your partners have built. Businesses between friends and family can work great, but if someone dies or acquires a permanent injury, the lack of a formal agreement can lead to a painful dispute and eventual financial ruin.

 

Available on Apple, Spotify or right here!

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